The mistake that everyone makes is chasing returns. We always try to select a fund that had performed well in recent times. Some years back this was the case with Nippon Tax saver fund too. It was once the best performing funds in ELSS category. However it is not investors at fault this time for what went wrong in the case of Nippon Tax saver. I prefer to blame it on the Fund Manager.
Nippon Tax Saver has performed very bad recently and the reason for the same is because of its exposure to much of Small Cap stocks. Well, this isn’t an issue actually. The fund manager had every right to invest in small-cap. The problem arose when the fund manager started replacing stocks in the portfolios with large caps. Within a duration of 1year, the fund manager had replaced more than 50-60% of the holdings with different stocks. The current AUM as on date is 9000 Cr. Imagine a situation that the fund manager sold 5000 Crore of stocks which was making losses and replaced them with funds which are already available at a premium.
ELSS are invested with a long term horizon. It already has a 3years lockin period also. Now imagine the case an educated and experienced fund manager picked 20 stocks to invest with our money for long term and suddenly 10-12 stocks underperformed and he sold them. Then we should question the stock picking ability of the Fund Manager. Also, if he doesn’t trust his picking ability himself so why should we?
The under performance story doesn’t end here. Once I attended a training session by Nippon MF employee. In the Q&A section some distributor over chat questioned the crediblity of the fund manager. The trainer from Nippon got angry and started questioning him. He said none had problem when the fund performed well for past 4-5 years etc. In the Q&A distributors can ask questions only via chat and the trainer would answer on call. The trainer was really angry and we all could feel it. Noone questioned the fund in later part of session.
Well, what I want to point out here is that the problem is not with the underperformance of a fund in a particular year or two. Problem is the lack of confidence of the fund manager in the stocks selected by him and also the quality of stocks selected. Selling means that the purchased stocks are real underperformer with no return option in upcoming years also.
Another weird thing that I had seen with just Nippon MF is that the executives regularly call the distributors and ask to push for sales of the funds. Every time they call I tell them to ask their fund manager to do a better job. What is the point in selling a fund which doesn’t perform.
Always check the performance of the funds handled by the fund manager in the long term. A short performance of 3-4 years is of no use. Check the experience of the fund manager with that fund.