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Posted On Friday, Jul 25, 2014
Ever since SEBI has announced the (be a serious player) minimum Rs 50 crore net worth criteria for an AMC, many of you have written to us, asking:
"What will happen to Quantum Mutual Fund? We love what you do and what you stand for, but what if you don't achieve the INR 50 crore mark over the next 3 years, what will happen to my investment in Quantum Mutual Fund?"
Absolutely the right question, dear investor. We take this opportunity to reinforce our stand.
The mathematics of Rs 50 crore.
In May, 2014 SEBI decided to raise the minimum net worth for an Asset Management Company to Rs. 50 crore instead of the earlier level of Rs. 10 crore. This, according to SEBI, will keep only the "serious" players in the industry. SEBI has given AMCs that do not currently have a net worth of 50 crore, a period of 3 years to achieve the same.
Quantum Mutual Fund is one of those AMCs that have a net worth of less than 50 crore. Our net worth as on March 31, 2014 stood at Rs. 28 crore.
In our view if we grow at the same pace of profitability of approximately Rs 3 crore per year (our average rate of profitability for the past 3 years) then we will have added Rs 9 crore to our net worth by March 31, 2017. This will take our net worth to Rs 37 crore - still short by Rs 13 crore to reach the magical Rs 50 crore mark as suggested by SEBI.
At that stage, our Sponsor and parent Quantum Advisors will inject the required Rs 13 crore (or more) capital into Quantum AMC. Quantum Advisors' current net worth is over Rs 60 crore and - in theory - Quantum could inject the balance Rs 22 crore (Rs 50 crore - Rs 28 crore existing net worth) today.
So, there is no need to worry.
We plan to stay on in the "profession" of the investment management and will continue to stand up and do what is right for our investors including fight against the "business" of gathering assets that have been adopted over the past decade.
However, we would encourage our investors to continue investing with us, so that, in an ideal world, we need not rely on anyone including our sponsors.
Since inception we have believed in being a low cost fund. Our expense ratios are among the lowest in the industry too, being a direct to investor fund house, we therefore do not need as much capital (as stated in the regulations) to run the fund house effectively. One of the cornerstones of the Quantum philosophy, apart from being low cost, is being transparent with our investors regarding their investments, as an example even if our funds don’t do well we write to our investors to inform you the same. Hence this email to put your concerns to rest.
It is this belief in the democratic company we have built – by the investors, of the investors and for the investors that we would ideally like the investors to contribute and ensure that the fund house that has only their best interests at heart continues on this path.
|Quantum AMC Net Worth as of March 31, 2014 (Unaudited)||Rs. 28 crore||Above the requirement of Rs 10 crore that was in place when Quantum AMC got its license in December 2005|
|+ Estimated profits of the next 3 years (assumes we have the same rate of profits as the past 3 years)||Rs. 9 crore||A sensible and correct approach to investing your money has ensured that Quantum AMC is one of the few mutual fund houses that has shown a growth in "Assets under Management" over the past few years!|
|Estimated net worth by March 31, 2017||Rs. 37 crore||...and we know that you will continue to support us because, not only do we do what is right, but we do it well!|
|SEBI rule requires||Rs. 50 crore||Since 1994, we have argued that the minimum net worth for being in the AMC "business" should be Rs 1 crore - since a Mutual Fund is a pass through medium, but various practices result in Capital Adequacy norms getting dominated in the regulatory process! One day, common sense may prevail, and the net worth may be reduced to Rs 1 crore while de-linking capital adequacy norms with networth but linking with practices followed and customers may get more choices.|
|Gap to be funded by injection of capital from the Sponsor, our parent, Quantum Advisors Private Limited||Rs. 13 crore||Honestly, Quantum Advisors could inject the required capital today but, it is extremely inefficient to have capital blocked in a subsidiary when it may not be needed. And we are not certain whether the SEBI rule will stand the test of time. Some Customer or someone in the new government may ask SEBI to explain why such an illogical rule has been put in place...|
|Existing consolidated net worth of Quantum Advisors private limited & its subsidiaries as of March 31, 2014||Rs. 60 crore||Yes, our parent has the cash.|
And here is a quote from Ajit Dayal, the Founder and Director of Quantum Advisors, our Sponsor: "The recent ruling by SEBI, which has been introduced by a questionable process and has been implemented despite the advice of committees not to do so, is another example of a regulatory process that has been hijacked by the whims of individuals and lobbied for by the large financial firms with total disregard for the harm such an artificial barrier causes to the investors. Illogical regulations never stand the test of time. Having said that, we will not wait for logical regulation to be implemented! We will keep our capital ready to support Quantum AMC. Quantum Advisors is committed to offering the tens of thousands of investors in the Quantum Mutual Fund a platform that is: (i) unique in its focus on lowering the costs paid by investors, (ii) giving investors a highly successful alternative compared to the opaque system perpetuated by the large fund houses for their benefit, and (iii) ensuring that your savings are deployed in our few, simple products to help you reach your long term financial goals."
Table 2: The simplicity of the Quantum success story is its focus on doing what is best for you.
|No. of Folios|
|June 30, 2011||Rs. 20.49 crore||14,820|
|June 30, 2012||Rs. 23.44 crore||25,230|
|June 30, 2013||Rs. 25.74 crore||38,392|
|March 31, 2014 (Unaudited)||Rs. 28 crore||41,042|
But, what if Quantum does not make it to the Rs 50 crore mark?
Despite the reality of past profits and a strong sense of commitment, you may still have a doubt. "What if", you ask, "what if we continue to remain in an era of Kal Yug? What if the Ram Rajya that Prime Minister Modi wishes to build does not touch the mutual fund industry? What if the illogical regulation stays? What if the industry giants continue to rule and ruin the fortunes of investors? What if Quantum AMC fails to reach the Rs 50 crore net worth mark?"
These are all very valid points, dear investor, very valid.
In the very unlikely scenario that Quantum AMC does not reach its minimum net worth, we will have to wind down our mutual funds. And you will have to take the savings you trusted with us elsewhere. There will be no loss to you - well, you will lose having a relationship with us, that is true!
But your money will never be at risk.
And you will have to choose another fund house.
You will need to find someone you can trust, someone whose very existence is to serve you.
Yes, it is scary.
A mutual fund industry without a Quantum AMC.
A mutual fund industry without the ethical values that Quantum endorses.
A mutual fund industry without the investment principles that have been deeply ingrained in the investment professionals who manage your savings entrusted to Quantum Mutual Fund.
Quantum Mutual Fund commits to you that we will be true to you and that we will never mis-sell our products. We will never put our desire to grow AuM ahead of your wish to be given honest and sincere advice. And we need your support in this journey to prove that an honest financial company can not only exist but thrive. We need you to continue believing in what we have delivered for the past 8 years; to ensure that what was built for you is never snatched away by poor regulation or strong lobbying from business groups that seek "consolidation" of the industry when the correct solution is more - and superior - alternatives driven by start-up AMCs with great ideas and none of the legacy and obsession of Assets under Management.
As many investors in Quantum Mutual Funds know, the "Acche Din" began a long time ago. We have built a world class, customer-focused company to diligently look after your hard-earned savings. It is now up to you to use it and place more of your savings pool in Quantum products. We seek your continued support and investment in Quantum Mutual Fund – but only after you have fully understood the risks of each product and have read the SEBI-ordained Disclaimers!
And with your support we will have the honour of serving you for many years in a mutually beneficial long-term partnership.
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