This column of April 12, pointed out that investor protection was in no party’s manifesto. Things have gotten worst, and the individual investor is, increasingly, becoming like a lamb being led to slaughter by all concerned.

The words of Tennessee Ford in the song ‘Sixteen Tons’, the life of a poor coal miner, were never truer ‘you load 16 tonnes, what do you get? Another day older and deeper in debt. St Peter don’t you call me, cos I can’t go, I owe my soul to the company store’.

The earlier article of April 12 spoke about three avenues of investment for individual investors, viz, bank deposits, debt mutual funds and equity funds, being risky.

Last week, the debt mutual funds run by DHFL Pramerica lost nearly 50 per cent of their net asset value in one day. Others, such as Tata MF lost 30 per cent as did, by lower amounts, those of UTI, Birla, DSP and Reliance. It seems that DHFL Pramerica had invested 50 per cent of its (publicly raised) debt fund money into sister concern DHFL, which defaulted. This begs several questions, which need to be answered, and investors must demand them.

Banks, for example, have limits on how much exposure they can take to a company or to a group.

Why does AMFI not have a similar exposure?

Do mutual funds not have any ‘related party’ exposure limit? Are they required to disclose investment in related parties; if yes, did they do so and if not, why was AMFI not alert to this?

Are individual investors lambs being led to slaughter?

DHFL Prameica’s US Partner is Prudential which is a Fortune 500 company. Its life insurance business has an AUM of $1.5 trillion, the largest in America. How can it not have prudential lending norms and proper oversight?

Delays at NCLT

The sorry state of several PSU banks is known. The hope that NCLT would, under the Bankruptcy Act, help get timely resolution of outstanding debt through sale of assets, has become mired in timeless delays, often caused by the defaulter itself! As these columns have often pointed out, an urgent review of the judicial process, to make it less sympathetic to scamsters/ defaulters and more sympathetic to their victims, is needed.

Individual investors never get justice and those who are connected, or have taken large sums of money, can delay punishment indefinitely.

One hopes that PM Modi lives up to his promise of bringing them to task.

Now comes another shocker, but in UK (can it happen in India? Perhaps).

Neil Woodford is a famous fund manager who launched an Equity fund in 2014, after a stellar performance at Invesco. He has suspended redemptions from his equity fund for 28 days, in consultation with the Financial Conduct Authority, after a large investor requested a large redemption.

Can investors in an open-ended equity fund in India suffer this fate of suspension of redemption?

UTI’s default

Well, it has already happened! The US 64 scheme of UTI, which started as an open-ended scheme, with sale/repurchases based on NAV (net asset value) plus/minus a small difference, drifted away from it to an arbitrary value unlinked to NAV. The sale/repurchase went far higher than its NAV! Came a point in time when it was unable to meet redemption, and reneged on its promise. It paid ₹10 per unit instead of around ₹16, and that too after a few years! Individual investors were lambs led to the slaughter.

Other shephards of these lambs are auditors and rating agencies. The auditors of previous scams, such as Satyam, were let off with a ‘rap on the knuckle’ treatment, emboldening them to bigger scams.

In US only two companies are rated AAA. In India, the Indian rating agencies have rated 276 companies, whilst foreign ones such as S&P and Moody’s have rated 9 and 53, respectively. Ratings downgrades are usually too late for investors to take action, sometimes after the event. There must be a rethink about methodology of ratings, frequency of review and by whom the agencies should be paid.

The Indian markets have hit new highs thanks to FII inflows post election results. But a lot of work still needs to be done in the second term to get the economy moving. The forthcoming Budget cannot have funds left for kick starting the economy. Those who have defaulted with banks, or have stolen from he public through Ponzi schemes, must be punished, their assets seized, as also those of policy makers found guilty of corruption. It’s a crying shame that these never come to a conclusion but seem to be used in mutual back scratching.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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