HARD TIMES

INTERNATIONAL FUNDS
How mutual funds are going global

TIME TO BUY DEBT FUNDS?
Fund managers prefer short-term schemes

FUND MANAGER OF THE YEAR

Sandeep Kothari
Equity FM of the year

Suyash Choudhary
Debt FM of the year

FUND CAFE
Fund managers discuss the future of the industry

DISTRIBUTION OF FUNDS
A profitable proposition

FUND DIRECTORY
The report card of funds across categories and fund houses

SECTOR FUNDS
Banking sector funds have given the best returns

DATA BANK

FUND MANAGER 2006

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The JURY Is In

A four-member jury studies the performance of schemes to pick the best fund managers.

Once again, it’s time to announce our fund manager awards for the year. The winners for the year July 2006-June 2007 are Sandeep Kothari of Fidelity for equities and Suyash Choudhary, Standard Chartered AMC for debt. The winners were selected by a four-member jury chaired by Ravi Narain, managing director, National Stock Exchange. The other members of the jury were Pradip Shah, chairman, IndAsia Fund Advisors, Jairaj Purandare, executive director, Pricewaterhouse Coopers and Abhay Havaldar, partner, General Atlantic.

The members spent several hours discussing what criteria should be used for judging the performance of fund managers. They debated at length the rationale of assigning a weightage to the corpus and then applying it to the basic criterion of the Sharpe ratio, which is the risk-adjusted return that schemes have given over a defined period of time. They also posed the question of whether the date of the inception of the scheme was important. It wasn’t all serious business though; the members had their share of fun.

Only open-ended diversified funds, whether large-cap or mid-cap were considered for the purpose of this award and sector funds or theme funds were not eligible. The daily returns on the NAV (net asset value) and a risk-free return of 5.5 per cent were used for the purpose of calculation of the Sharpe ratio. Moreover, the fund manager should have managed the scheme for at least the one year considered for the purpose of the award. Here’s a synopsis of the views expressed by jury members during the course of the discussion.

Ravi Narain: Let’s take a look at the equity schemes first.

Pradip Shah: What we are measuring with the Sharpe Ratio is simply the return per unit of risk taken. The ratio does not take into account any credit risk in the portfolio. However, there may be events that may have a bearing on the performance of the scheme, perhaps at a later stage that are not factored into this return.

The Sharpe Ratio will not capture that and so, for future years, if possible, we should try to find out whether the scheme has any write-offs or impairment values. We need to do a test by which we can see whether there are any hits taken for bad debts. It should not happen that a fund manager has taken an undue risk, which doesn’t show up during the period under consideration but hurts the scheme at a later stage.

Ravi Narain: That’s true. Also, the sizes of the corpuses for the equity schemes vary significantly. Some schemes are very small at just a few hundred crores and there are some where the assets total Rs 2,000-Rs 3,000 crore. What we need to check however, is whether there has been any significant churn in and out of the fund. We could perhaps look at the minimum and maximum corpus at the end of a month.The the style of the fund manager and the portfolio turnover ratio are also important. It’s a qualitative factor.

Also, in future, if the data is available, we should also look at the number of investors at the end of every month to try and see whether there is any variation. If there is a big difference, it says something about the way the fund is being managed.

Continued on next page

Business Standard • FUND MANAGER • October 2007