Sucheta Dalal :Looking at mutual funds
Sucheta Dalal

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Looking at mutual funds  

Sep 28, 2003

Now that the Securities and Exchange Board of India (Sebi) says that it may extend its investigation into Samir Arora’s activities to the Alliance Asset Management Company, investors should listen to Eric Tyson, author of Mutual Funds for Dummies.


He says investors should keep a list of mutual fund (MF) companies that have been implicated in unethical or illegal dealings and refer to it while considering a fund investment, because ‘‘integrity is very, very important in choosing your fund manager’’.


Interestingly, lack of performance and integrity is the reason why Indian investor groups are opposing real estate MFs. For instance, the Investor Grievances Forum has told Sebi that unless the fund industry fixes its own poor performance, it should not be allowed into real estate.


IGF says: 37 out of 47 MFs in India have lost capital, a majority of MFs have not paid dividends or made profits, they are not transparent and have lost credibility with regard to their expertise both in the equity and debt segments.


Moreover, the 14 real estate companies listed on bourses are underperforming, says IGF. No wonder, Sebi is listening to investors rather than the MF lobby.


Spitzer’s findings


The scope of Spitzer’s investigation continues to scare investors around the world who believed that US investor protection rules were watertight.


So far, Spitzer has charged the Bank of America’s recently dismissed broker, Theodore Sihpol III with larceny and securities fraud over ‘late trading’. Siphol also faces civil action by the SEC covering disgorgement of gains, penalties and a prison sentence.


Late-trading, which Spitzer says is akin to ‘‘betting today on yesterday’s horse races’’, are estimated to cost American investors around $4 billion annually. Spitzer has zeroed in on four funds— Bank of America’s Nations Funds, Bank One, Strong and Janus Capital Group— for hatching a deal Canary Capital Partners for mutually beneficial trades conducted after closing hours. Next on Spitzer’s list is Prudential Financial and it is not the last either.


Other malpractices


WHILE on mutual fund (MF) mischief, the NASD (National Association of Securities Dealers) had slapped a $2 million fine on Morgan Stanley for offering freebies such as holidays, tickets to concerts and sporting events and gift certificates in order to push their funds. This is happening openly in India too, but differently.


Since fund subscribers in India are mainly firms with surplus cash, MFs work at luring treasury chiefs of companies and banks to invest in them. And since all of them have similar schemes, with very little difference in performance quality, funds that offer the best bait get the business.


Dalmia’s AllServe


THE New York Post and Chris Byron continue to investigate AllServe Systems Corp, that bought over the sixth largest United States (US) call centre called Aegis Communications, and seems to be connected with Dinesh Dalmia of the DSQ Group. The New York Post now reports that AllServe Systems ‘‘appears to be operating illegally in the state of New Jersey’’. The NY Post quotes New Jersey officials as saying penalties for failing to register as an out-of-state company conducting business in New Jersey include fines and potential expulsion from the state by the Attorney-General.


The new investigation recently started by the Indian Enforcement Directorate would hopefully reveal a few details about Dinesh Dalmia’s overseas operations


-- Sucheta Dalal