If you ask for a summing up of what is wrong with mutual fund investing in India, here is the list I would come up with. Investors don't invest regularly and instead put in money only when the markets are high, only to pull it out when they are low. There are too many and vaguely similar funds, sometimes even from the same fund company. And many of these funds are specialty or thematic or
sector-specific funds that have been launched just to get the benefit from easy sale of the top flavour of the season.
While listing these ills is simple, doing something about all of them doesn't appear to be easy. It would involve investors abandoning their natural instincts and fund companies doing things that may not be good (or at least easy) business. Now, however, a brand-new fund company says that it is going to run its business in such a way that none of these problems can trouble its investors.
Too many, and too complex funds? PPFAS Asset Management says it will launch only one equity fund that will be an all-weather one. Investors tend to invest only when the market is high? PPFAS won't accept fresh investments when they think there's a bull run and most stocks are valued too richly to invest. Far from participating in the cutthroat competition for assets, they will actually refuse investors when investing doesn't make sense. Interest of the investors and management is not aligned? This is the most intriguing one - the company's management says they will put their personal investments into the fund and these details will be public. Their money will be where their mouth is.
Can such a contrarian approach actually work? Well, the proof of the pudding will be in the investment performance but the management does have the track record of running a successful portfolio management service for many years. In any case, it's very good to see some fresh-thinking and innovation on solving the real problems of fund investing. As PPFAS shows, and Quantum earlier did, it's only the smaller AMCs that have to compete against odds who will innovate--the big guys are comfortable milking the status quo.