Do Flexi Cap Fund Managers Eat Their Own Cooking?

With assets of INR 5,532 bn, Flexi Cap continues to be the largest equity fund category in the Indian mutual fund industry. The appeal is obvious: Portfolio managers can invest in stocks from across the market cap spectrum, in an unrestrained manner.

The current environment—uncertainty coupled with volatility—is primed for Flexi Cap funds.

While investors have been busily investing in Flexi Cap funds, I thought it would be interesting to find out if portfolio managers share their enthusiasm.

Do portfolio managers invest in Flexi Cap funds they run?

When a portfolio manager invests substantial personal monies in funds he runs, he displays courage of conviction. It signals that the manager has faith in his investment skills, and that he is willing to take the same journey as investors in his funds.

For this analysis, I’ve considered the 10-largest Flexi Cap funds. Accounting for roughly 77% of the category’s assets, makes them a representative sample.

Some clarifications are in order:

1) To begin with, the disclosures only reveal the market value of investments made by portfolio managers, not the sums invested by them. To my mind, the latter is a far better indicator of the manager’s conviction.

2) Furthermore, the disclosures combine mandatory compensation-linked investments in the fund (as prescribed by market regulator SEBI) along with investments made by the portfolio manager on his own. This further muddles the picture.

3) Finally, the most recent disclosures are as of Sep. 2025.

The findings are interesting…

1) About 31% of the category’s assets have attracted investments less than INR 10 mn from portfolio managers

2) One-third of assets enjoy investments of over INR 100 mn, thanks to a single investment team.

3) There is little correlation between the fund’s asset size and portfolio managers’ investments therein

4) The long-standing industry myth that only managers from leading fund companies (read large AUM) invest meaningfully in funds they run, is shattered

5) Finally, when it comes to ‘skin in the game’, the portfolio management team at the helm of Parag Parikh Flexi Cap towers head and shoulders above its peers

I hope SEBI tweaks disclosure norms to make them more granular, whereby the sums invested by portfolio managers are unambiguously disclosed.

Globally, portfolio managers treat ‘skin in the game’ as a badge of honour. 

Hopefully, Indian portfolio managers will agree, and act in a like manner.

Do Fund Managers Invest in Credit Risk Funds?

The repayment crisis in Fixed Maturity Plans (FMPs) has yet again put the focus on credit risk investing. All-too-familiar arguments suggesting that fund managers have erred by taking credit risk (or high-yield investing) have cropped up yet again.

Does this investment strategy entail risk – yes, it does. But that doesn’t make the approach flawed. To my mind, for investors who understand the risks involved, and have the ability to take on risk, credit risk investing continues to be an apt strategy.

Expectedly, fund companies and fund managers are busily defending their investment decisions. Some of the defences are admittedly ludicrous, but that’s a discussion for another day.

I thought it will be interesting to find out if fund managers are willing to put their money, where their mouth is. In other words, are managers running funds from the Credit Risk category, investing alongside investors? As of March 2019, the SEBI defined Credit Risk Funds category had assets of over Rs 81,000 crores (Rs 810 billion).

Some disclosures are in order: In the hunt for relevant information, I have perused various documents — Scheme Information Document, Key Information Memorandum, Statement of Additional Information, and fact sheets from websites of fund companies. While some fund companies continue to disclose information as of 2018, others have released updated information.

To efficiently analyse the data, I broke down manager investments into the following ranges: None (No Investment by Fund Manager), Re 1—Rs 10 Lakhs, Rs 10 Lakhs—Rs 50 Lakhs, Rs 50 Lakhs—Rs 1 Crore, Rs 1 Crore—Rs 5 Crores, Rs 5 Crores—Rs 10 Crores, Over Rs 10 Crores. The results are interesting:

Fund Managers Don’t Eat Their Own Cooking

• A massive 63% of assets in the Credit Risk category have not attracted any investments from managers running the funds. In other words, 11 (i.e. over half) out of 20 funds in the category are run by managers who are unwilling to invest in their funds.
• Roughly 8% of assets have investments in the range of Re 1 – Rs 10 lakhs.
• The only saving grace is that one fund accounting for 9% of category assets, has manager investments in the Rs 5 crores – Rs 10 crores range.

Clearly, fund managers running Credit Risk funds do not invest alongside investors.

Defending the Indefensible

Disclosures related to manager remuneration reveal that an annual compensation of Rs 50 lakhs (Rs 5 million) is commonplace even in mid-sized fund companies. Hence, the defence that managers do not have monies to invest, doesn't hold water.

Also, most managers have been at the fund's helm for a reasonably long period of time now. Hence, they cannot take refuge under the pretext of 'early days on the fund' either.

Finally, if managers have no reservations in asking investors to invest in funds they run, then no excuse is good enough for managers to not invest in the same fund alongside investors. Let's not forget: What's good for the goose, is good for the gander.

The Counterview

Sceptics will claim that a manager investing in his fund doesn’t guarantee performance. True, but, it is an undeniably important evaluation tool, which demonstrates the manager’s conviction in his investment approach and acumen. More importantly, it speaks volumes about his commitment to the fund.

I fail to see why investors should invest in a fund that the manager isn’t entirely committed to. I am certain that like me, most are wary of the chef who doesn’t eat his own cooking.

Do Indian Portfolio Managers Eat Their Own Cooking?

For some time now, The Association of Mutual Funds in India (AMFI) has been running an ad campaign “Mutual Funds Sahi Hai”, to propagate the cause of mutual funds. Incidentally, these are good times for Indian asset managers with industry’s assets soaring to record highs. Clearly, investors have taken to mutual funds in a big way.

I thought it will be interesting to find out if portfolio managers who run mutual funds have taken to them as well. To my mind, a manager investing in his fund speaks volumes about both, his commitment to the fund, and confidence in his abilities.

In 2016, market regulator SEBI made it mandatory for fund companies to reveal information about investments made in each fund, by the fund’s portfolio manager, and other key personnel.

I compiled a list of the 50 largest equity funds (excluding hybrids) to study portfolio manager investment patterns. These funds account for roughly 61% of the industry’s equity mutual fund assets, making them a representative sample.

Some disclosures are in order: In the hunt for most recent information, I have perused various documents—Scheme Information Document, Statement of Additional Information, and Key Information Memorandum. However some fund companies continue to disclose information as on 2016, while others have released updated numbers.

Another area of inconsistency is the investment figures. It is apparent that several fund companies have disclosed the current value of manager investments, rather than the sum invested (which is evidently more relevant). The only fund company which stands out in this aspect is SBI Mutual Fund, for having unambiguously disclosed both—the sum invested and current value of investment. This is an area where SEBI needs to step in, to ensure that manager investment are disclosed in a uniform manner across the board.

To analyse the data more efficiently, I broke down investments into the following ranges: 0, INR 1—INR 20,00,000, INR 20,00,001—INR 40,00,000, INR 40,00,001—INR 60,00,000, INR 60,00,001—INR 80,00,000, INR 80,00,001—INR 100,00,000 and over INR 100,00,000. The results are interesting:

Indian Portfolio Managers Don’t Eat Their Own Cooking

Out of the top-50 funds, 20% have no investments from their portfolio managers.

The INR 1—INR 20,00,000 range is the most populated one, accounting for 27% of the top-50 funds.

Cumulatively, the bottom two ranges (no investment, plus INR 1—INR 20,00,000) account for a staggering 47% of the top-50 funds. This is disappointing to say the least.

It can be safely stated that several Indian portfolio managers have little or no confidence in their investment abilities.

Defending the Indefensible

At this point it must be stated that manager remuneration disclosures reveal that an annual compensation of roughly INR 1 crore (INR 10 million) is common even at mid-sized fund companies. So the defence that managers don’t have monies to invest in their funds doesn’t hold water.

Managers can’t take refuge under the pretext of low tenure either, since 80% of the top-50 funds have had their present lead manager at the helm for over two years.  

Finally, a portfolio manager helming a niche fund (such as a money market fund or a sector fund) is perhaps justified in having a small investment. However, the top-50 list is comprised of conventional equity funds, which means that there is no excuse for having zero or tiny investments.

The Counterview

Sceptics might claim that a manager making a substantial investment in his fund doesn’t guarantee performance. But, it is an undeniably important evaluation tool, which demonstrates the manager’s conviction in his investment approach and acumen, and more importantly, his commitment to the fund.

I fail to see why investors should invest in a fund that the manager isn’t entirely committed to. I am certain that like me, most will be wary of the chef who doesn’t eat his own cooking. 

On a final note, perhaps AMFI should initiate an ad campaign targeted at portfolio managers to convince them about the benefits of mutual funds.