FMPS - MISLEADING INDICATIVES

MUMBAI: Many high net worth individuals (HNIs) are finding out the hard way that indicative portfolio investments shown by fund managers of Fixed Mat

urity Plans (FMPs) can be dramatically different from the actual investments. Forget about generating decent returns, some of the reputed fund houses are now struggling to protect the initial investments of their unitholders.

For instance, an HNI who had invested a large sum of money in HSBC’s Fixed Term Series 52 FD (total scheme was worth Rs 275 crore) in March this year, discovered much to his surprise that approximately 34% of his investments were in long-dated paper, resulting in maturity mismatch. Additionally, there was a concentration of securities, even though the indicative portfolio had shown almost 26 names. The indicative portfolio had suggested that approximately 50% of the investment would be in bank CDs.

The current NAV of the scheme on October 21, 2008, was Rs 9.98 (Face Value Rs 10/-) To add insult to injury, an exit load of 2% was charged, which was over and above the asset management fees built into the scheme.

According to the fact sheet of the fund, about 16.72% of investment was in the commercial paper of Reliance Capital, (not in the indicative portfolio) around 3.51% in CDs of ABN Amro Bank and EXIM Bank. Roughly 45% of the portfolio was invested in securitised debt instruments of four firms — 19.9% in Indiabulls Financial Services, close to 17% in DLF and 8.27% in Simplex Infra. The HNI concerned exited the scheme with a loss on his original investment.

The HNI questions the veracity of the portfolio and said he was never informed about these decisions as the investment was made based on the indicative portfolio. “If it is supposed to be a diversified portfolio, why have they invested the majority in these papers. Even if the actual investment period for an FMP is later than the release of the indicative portfolio, there should be at least 75% uniformity,” said the investor on condition of anonymity. Samples should not vary from the product by 75%.
What a reader had to say :
Dr P K Noorani ,Gadag -Karnataka,says:
Well , here is where the Regulators should step in. SEBI is almost in the process of making this transperant . finally a comment on the Fund managers , they are the ones benefiting from these schemes , wheather its a positive or negative return , they always get away with a fat commission & all perks , & we Investors are left holding the BAG !.