Why Large Cap Mutual Funds invested in Paytm IPO?

Digital payments platform Paytm made history by launching India’s biggest ever initial public offer (IPO) worth Rs 18,300 crore. Under the anchor investors quota, few mutual funds especially large-cap mutual funds invested in this IPO. The question is why large cap mutual funds invested in Paytm IPO?

Today morning when I tweeted about this, as below, one of my followers asked the question that why large cap mutual funds invested in Paytm IPO?

Why Large Cap Mutual Funds invested in Paytm IPO?

His question is very much valid. Take from the below image which is shared by Moneycontrol and the same was used in my tweet.

Mutual Funds invested in Paytm IPO

You noticed that Moneycontrol showed only few large value fund names. However, it is mentioned in the same image that around 18 mutual fund schemes got allocation in the anchor book.

Whether these mutual funds did wrong by subscribing to Paytm IPO? Not at all. However, the suspicious move is by few large cap mutual funds.

Before pointing them directly, let us try to understand what is Large Cap Fund as per SEBI rules.

As per SEBI rules, a fund can be defined as a large cap if it’s minimum investment in equity & equity related instruments of large cap companies-80% of total assets. Hence, these funds have mandatory requirement of investing in Nifty 100 stocks of up to 80% of their total asset under management.

For the remaining 20%, fund manager has a full freedom. He can take investment call to invest as per his choice to create you the ALPHA. Investing by these funds in Paytm IPO is also one among such decisions.

Whether this IPO is successfull or failure and why the failure is secondary. However, as an investor, you can’t question it. Becuase these fund managers found VALUE in this IPO. Hence, they subscribed.

Take for example how someone defended (from Hindu) “A Balasubramanian, Managing Director, Aditya Birla Sun Life AMC, said investors in mutual fund schemes which have exposure to Paytm should not be overly worried by the weak listing of the shares.

In the overall portfolio of a scheme, the investment in Paytm will be very miniscule and investment in other shares will more than make up for mark-to-market loss in Paytm, he added.”

Therefore all these fund managers are DEFENDING their selection of Paytm and passifying you to calm down and nothing to worry 🙂

But do remember that they are not saying they did something wrong. In fact in the history of mutual funds, neither any fund manager or AMC accepted their fault or will do the same in future. Whether its Franklin fiasco or this Paytm IPO subscription. You have to digest their decision. Because Mutual Fund is not only subject to market risk but also subject to AMC or Fund Managers RESEARCH RISK.

Market risks we can understand but by adopting the active fund you are unknowingly taking the AMC or Fund Mangers RISK. This you have to bear as they promised (sorry showed you the DREAM) you that they create ALPHA. Neither regulator can question nor you and me. Hence, the journey will continue!! Calm DOWN!!

13 thoughts on “Why Large Cap Mutual Funds invested in Paytm IPO?”

  1. Rama Kamesh Duvvuri

    I guess what is needed is a clear analysis and financial implications as Stock market investment is always risky and not guaranteed…Either you invest thru directly in Stock or via MF ..May be downside is arrested via MF ..as they are supposed to Diversify and invest in multiple Stocks…I still have my own doubts on any analysis on fundamentals and technicals….except for hindsight and useful for back testing..Fund manager is also a layman and just lucky to pick some well behaving stocks…In reality Retail investors and thier hard earned money goes down the drain..by these mindless valuations…

  2. I think this article is nothing less than an Indian abusing Indian Cricket team when they lose a match.

    Active Funds are ‘managed’ by Fund Managers – who does not know about it? If an investor invest in mutual fund they take a conscious decision of investing with the Fund Managers. Hence, Fund Manager performance is a publicly available information.

    Cut these fund managers some slack and don’t misguide the uninformed investors about anything. If Paytm IPO had got listed gains, no one would have even raised this finger. So, please stop being that Indian Cricket fan who starts abusing the team when they lose a match.

    1. Dear Rishie,
      I feel pity about your comparison. There are various cricketers in history who upfront said SORRY for the fans and the country when they not perform to the expectations of the people. Do you FIND or EXPECT from your ACTIVE FUND MANAGERS? Even a person who wishes to be a partner in a tea stall tries to do his own research about profitability, sustainability, competition, management and growth. Instead of doing these things, they just tried to encash the IPO BOOM and show to investors that they created ALPHA. How many fund managers in history upfront accepted that the performance is because of LUCK but not SKILL. Or on this earth all fund managers are GOD who never did a mistake and LUCK not played in their role? Be realistic when you defend someone.

  3. The question is “fund manager research risk” vs “direct equity investors’s own research risk” vs “SEBI RIA’S research risk”.

    Conviction and trust makes us choose out of these.

    1. Dear AMFI REG MFD,
      Among the risks you shared, if you opted the Index Funds, then you can easily remove all these 3 risks.

  4. Bala sir from ABSL says “….the investment in Paytm will be very miniscule….” (quoted from above). Even if Fund manager has got right, what impact it is going to create on entire MF portfolio – to generate that ALPHA over index. No one can judge now whether their decision is wise or not, except future.

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