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Advisor Viewpoint
Analysing Funds & Asset allocation- from an advisor to the AMC
Mr Abhay Dandekar


Mr. Abhay Dandekar from Pune, who is one of the members of the Birla Sunlife AMC Advisory Council, a representative for the IFA community across the country to the fund house, talks about the parameters to analyze funds and how he does the asset allocation for his clients.

MF Live:  Mr. Abhay Dandekar, you being a member of the advisory council of the Birla Sun Life Mutual Fund, are quite aware of the stand of IFAs in the industry. We would like to know your stance on the matter.

Mr. Abhay Dandekar:  It so happens that most of us are individual financial advisors; thus we do not have the backing of big organizations. We build our own businesses from the very scratch. We grow because of one satisfied investor who probably spreads the word to his/her acquaintances. We grow because we publicize. A crucial role is played by the personal touch we possess and the one to one relationships we have with our customers.  

Over the years, such a relationship is built with customers that they share all their financial secrets with us. 

My role at the Birla Sun Life Advisory Council is to communicate with the Asset Management Company, what is the support/ training Individual advisors require. 

MF Live: We definitely agree on the point that trust plays a very important role in the work of IFAs. Now, taking into consideration every aspect of the industry (like remuneration and regulations), what according to you, should be the focus of IFAs and what should their approach be like?

Mr. Abhay Dandekar: Honestly speaking, the position I have reached today is much higher than what I had expected in the beginning. This is mainly because of the growth in the industry and the performance of the market.  We avoid too much churning in the portfolio. 

But we do not simply sit tight on the portfolio. If you look at the long-term average, the stock market has given 15-17% returns. However, all the years have not been the same. Some years have given a return of 30% while others have delivered normal or negative returns. When valuations in the market turn irrational, we try to book profits. Also, when markets seem irrational we invest the sums in Debt funds and wait to take a call. However, while this is the last step, the first step necessarily involves investment assessment taking into consideration the entire family plan of the client and with asset allocation given utmost importance. 

MF Live: This was about planning for clients. What goes down in selection of funds in various categories?

Mr. Abhay Dandekar: To evaluate any scheme, I believe the most important parameter is whether the scheme is true to its label, i.e., whether the scheme is true to its investment objective. What happens sometimes is to drive returns, fund managers deviate from the investment objective and scheme label. 

This is important because while doing asset allocation, we do not just segregate the same in Debt & Equity allocation, but within equity, the allocation is done between Large Caps, Mid- Caps & Small Caps. When a particular segment outperforms, we bring back the funds and invest in other segments, which makes us follow the Buy Low- Sell High principle.  
Deviation in their portfolio from the mandate of the scheme, even if it gives performance regularly, you cannot take that for granted, it is not always consistent.

A major aspect of our business is that; I am not managing my money, I am not investing my money, I am investing someone else's so it is my fiduciary responsibility, and the allocation should be stable for the portfolio.

The allocation between Category (Debt/ Equity) followed by a further allocation within the Category (in the case of Equity- Large Cap, Small Cap, Micro Cap, etc.). A certain percentage of Debt allocation for liquidity purpose and Small Caps & Midcaps are chosen to drive the performance. Large cap allows us the security of having some funds handy, while Debt allocation automatically also creates an emergency fund.

The other aspect we analyze in the funds is the portfolio turnover ratio of the fund. The expenses for buying and selling stocks are debited to the Profit & Loss account of the fund and does not form part of the SEBI mandated expense ratio. Hence, this affects the returns generated from the fund. Typically, higher turnover ratio determines that the fund manager is churning the portfolio frequently. However, we analyze into the reasons as one of the reasons for the same can be money coming into the fund and money going out of the fund which does not mean to be churning in the real sense.

One example of such a fund I have come across is the Parag Parikh Long Term Value Fund. Where the fund manager follows the Warren Buffet principle where they buy stocks that they would like to hold for next five years. 

What follows broadly is the track record of the fund and the experience of the Fund Manager and the services received from the AMC on redemptions, corrections. This counts too!

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