IDFC Premier moves in and out of stocks month after month
Moneylife Digital Team 28 October 2011

Mutual funds are supposed to be long-term investors. Why did IDFC Premier buy Tecpro Systems in August and sell it completely in September and sell Fag Bearings in August and buy it in September?

Most fund managers show you, by way of illustration, how a stock held over years can fetch you high returns, underlining the importance of ‘buy’ and ‘hold’. Do funds follow this approach in practice? Some even buy and sell the same stocks erratically for no apparent reason.

While looking at some fund data we came across some strange transactions in IDFC Premier Equity Fund. As per our data, the fund bought 9,67,545 shares of Tecpro Systems Ltd in August 2011 and then completely sold them in September 2011. Tecpro (listed in October 2010) has halved in value from the listing price. We also noticed that IDFC Premier had 200,000 shares of Fag Bearings at the end of July 2011, sold them completely in the immediate following month, that is, August 2011—and bought 247,602 shares in September 2011. What could be the reason for such frequent buying and selling? We asked the fund house but did not get a relevant answer. Indeed, a spokesperson replied that “we are long-term equity investors and don’t look at short-term opportunistic liquidity events.Given this, your query is factually incorrect” but was unwilling to show what was “factually incorrect” about the data. The data for this is sourced from the Mutual Funds of India (MFI) database; MFI insisted that this information of buying and selling is absolutely correct because it is culled from the data submitted by the fund house itself.

Mutual funds are supposed to be the best bets for those who have no idea about markets and individual stocks. Picking stocks is a job that needs long years of knowledge and expertise and mutual fund managers are supposed to be experts in that game. Unlike millions of uninformed and emotional individual investors who, reacting to greed, buy high and then, reacting to fear, sell low, fund managers are supposed to know what to buy and when.

However, as we have been pointing out time after time in many of our articles on mutual funds, including some unusual fund managers are, after all, human and they too act like individual investors from time to time. They buy the wrong stocks; they buy at the wrong time; and they sell at the wrong time. They cruise along in a bull market confusing luck with performance and are shocked to find the market collapsing around them. They talk of value investing but hold on to expensive stocks hoping for one more rally. They chase momentum. Not all fund managers sport these patterns of behaviour always, but almost all of them do at some time or the other. As we said, they are human.

We have nothing against IDFC Premier. It is a well-performing fund. We wished to understand the factors behind its performance. The bizarre buying and selling from month to month is not confined to IDFC Premier. We will bring more stories of buying and selling by fund houses in the near future.

Comments
jj
1 decade ago
there ARE MANY MANY ISSUES WHICH MONEYLIFE CAN ADDRESS/REDRESS & DEAL with, but it does only what it wants to do. why?
Ramesh B
1 decade ago
idfc-PEF,is midcap oriented fund.idfc-smalnmidcp fund is renmaed as Sterlingfund.idfc-imperial is largecap.
now,name of the scheme should be transperant enough to know the catagory of the fund.idfc schemes names doesnt reveal it true theme.SEBI to insist that scheme names should expressly reveal its
catagory.many AMCs title the schemes clearly it base theme/benchmark.eg xxmidcap,xxsmalcap fund...

Sanjay
1 decade ago
SOme mischief here
Last 2 comments shows sender Sanjay but both are different people so Beware
Sanjay
1 decade ago
There is nothing wrong in this transaction. Moneylife is making a big issue out of nothing. Look at funds in the last 5 years which have given negative returns. Surprised that Moneylife is checking in IDFC PEF which has performed excellently. Look at other equity funds which have barely given returns equal to a SB Account in the last 5 years.
Sanjay
1 decade ago
My raising the query was not why idfc Premier fund manager did what they did?
My query is How did the the fund do this quantity of buying & selling when jointly the months volume of both the exchanges jointly also dont cover the transcation of idfc permier's transcation volumewise.
Many questions can be raised from this data?
skj
1 decade ago
All of the above only points out to omissions of stocks in the fact sheet. Can the writer please check with the company's in question on their shareholding list to see if the above is valid and if the shareholding is so volatile. If so then the motive is questionable. Else we are raising issues with just one side of the story...
Prabal
1 decade ago
Does needless whistle blowing lead anybody anywhere?
CSK
1 decade ago
If only they are innocent what is the need to hide mentioning incorrect facts. Are they incorrect or is the MFI data incorrect. Every fund management decision undergoes a process. Let them put up the process note if their hands are clean. They should dare enough to prove either Cafe Mutual is wrong or the MFI data is wrong. Well done CAFE MUTUAL. Bring out more such facts and educate both the investing public and distributors.
arvind
Replied to CSK comment 1 decade ago
care mutual? what is that
suhas wakankar
1 decade ago
the fund managers are professionals paid millions of rupees as salary out of money we investors invest. They are not innocent like us.They know what and why they frequently buy and sell stocks at heavy loss of investors money. May be they have personal interest and must be getting a big booty from companies for such action. This needs a serious
investigation from financial fraud/ criminal interest point of view.such act of misuse of investors money is nothing but a criminal offence
BHARAT
1 decade ago
I would agree that the fund has been doing well. but such erratic buying and selling could be risky too. besides, Sanjay has also pointed out very relevant data. these all need to be put in perspective and analysed for better understanding.
Ranjan
1 decade ago
There is nothing wrong what IDFC has done in managing portfolio.Buy and hold was a good strategy 15 year ago when stock market was not only the place of speculation.Now in stock market there is 85%-90% is speculation.Real investors had shied away from the stock market during the last 4 years.In this type of speculative market "Buy and hold" strategy is not at all good.Frequently churning of portfolio stocks is only the buzz word and only it help the scheme to perform better.Yes, i understand that cost of changing portfolio is there but it is not so important than the overall return the scheme can generate.For instance if some Mutual Fund holding the share of Reliance Industries for last one year think about erosion of AUM of that scheme so also the valuation of investor's money.I failed to understand why many MF are still holding Reliance Industries.If they would switch to Hero Honda or TTK Prestige or Bata India they would have got remarkable return.
I can definitely not admire the fund managers understanding of stocks.
Deepak R Khemani
Replied to Ranjan comment 1 decade ago
Was the fund manager an astrologer to know that Reliance will not perform and TTK prestige and BATA will perform? What you are saying can only be said in HINDSIGHT after looking at prices of these scrips and not in advance!
Sunil Bhagat
1 decade ago
IDFC Premier is one of the best performing mfs in the mkt. It has been one of the better funds to limit the downside also. I think it is only human to make errors.As there does not seem to be a change in the fund management , I think we should wait and watch rather than raising such questions.
PRABAL
Replied to Sunil Bhagat comment 1 decade ago
If errors have given me better returns I would suggest other fund managers to follow queue. I have found critisizing for the heck of it is the current fashion statemenet
Ramesh B
1 decade ago
surprised by such moves by IDFC-PEF.
rightly its a good fund,BUT one such unusual moves in the fund in the past-
it bought big chunk of Raj oil mills in IPO.
The share from around 120 went down to
40(now 23).the fund offloaded the share.but the reason for this move and loss is hard to digest..!
niten
1 decade ago
Please Check UTI Sunder
Nav 566
CMP 2700
Clear case of manipulation
SANJAY
1 decade ago
Surprise to say Idfc bought tecpro in august 2011 9,67.545 shares but nse's total volume in techpro was 3,48,175 shares and bse had 101785
in August 2011 How & from where did Idfc bought 9.67 lac shares in august 2011.
Sept 2011 it was sold and bse data afor sept is 132001 and for nse sept data is 464346 shares How IDFC transacted this volume. Is it some book entries within the funds.
bharat
Replied to SANJAY comment 1 decade ago
Dear Mr. Sanjay,

u seem to have pointed out extremely relevant data. this should be shared with the AMC for better clarification. r u an IFA?
Sundaram
Replied to SANJAY comment 1 decade ago
Very logical point raised by Mr.Sanjay.Are these internal book entries between various schemes?
JVP
Replied to Sundaram comment 1 decade ago
Looks like some criminal manipulation of the books. Transferring gains/losses from one Fund to another. SEBI should investigate.
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