Quantum applauds SEBI's Total Return benchmark mandate for equity schemes

Posted On Friday, Jan 05, 2018


We couldn't be more pleased with the recent SEBI ruling that, going forward, all equity schemes must present their performance against the Total Return variant of their respective benchmarks, instead of merely the Price Return Index /variant. We have followed that practice since the inception of the Quantum Long Term Equity Fund in 2006, and we are not surprised that SEBI agrees with our philosophy.

Why is this important? The total return of an index is always higher than the price return because it includes the dividends and interest paid by the underlying companies. In fact, a recent Morningstar India study showed that over the past 5 years, the S&P BSE 100 Total Return Index outperformed the Price Return index by 1.65% a year. Using that as a comparison makes active managers look a little less valuable because it lowers the number of funds which actually "beat the benchmark."

Is that fair?

We think so. We are active managers because we believe our research process can generate better results to the passive alternative (i.e. just owning an index fund). If we didn't believe that, then we should cut out the cost of a research team and only offer index funds. We believe our analysis can lead us to find companies whose stocks will outperform in the future - and that includes the dividends they pay.

In order to get a true representation of how much value we are adding, any comparison should only be against the return an investor can achieve from a passive investment. Index funds own stocks, and some of those stocks pay dividends - sometimes rather large ones at that. If you owned the index fund, you would receive those dividends. This doesn't show up in the price return of an index. A price return index therefore understates the true potential return available to investors, and using that as a comparison inflates the true value added by an active fund manager because it makes it look as though the manager is outperforming by even more. An active fund portfolio's dividends are included in its total return - why shouldn't the fund's benchmark also include them?

Even though it has taken some time to become industry standard, we are once again pleased to have been a pioneer on this front. This isn't the first time Quantum Mutual Fund has led the path forward to what would later become standard industry practice. Here are a few of our Quantum Firsts that eventually became SEBI rules:

    1. We were India's first and only Direct to Investor Mutual Fund till SEBI made it mandatory for fund houses to have Direct Plans. This was in 2013; we've been serving investors since 2006.
    2. Since our inception in 2006, we were the only fund house to not charge entry loads for all our funds for investors; this became a SEBI rule in 2009.
    3. Quantum was the first fund house to come up with a completely paperless online investing process, doing away with the need for an investor to visit any branch; investors could complete even the first investment from the comfort of their own homes.

  1. We were the first fund house to credit Exit Loads back into the scheme; SEBI made this mandatory in 2012.
  2. We started going national with our investor education initiative, Path to Profit, in 2009. SEBI made it mandatory for fund houses to conduct IAPs all across the country in 2012.

There are over a dozen more practices we could count that we've introduced over the years with the aim of making investors' lives simpler. This we will continue to do: we will always focus on our philosophy of putting the investor first and innovating around that one principle - on the product side as well as on the technical side.

We are very happy and humbly thank SEBI for recognizing some of our investor practices and converting them into rules that the rest of the industry has to follow. There will be many more such firsts from Quantum. It is because of the support of investors like you who write to us or meet us at our Path to Profit sessions and give us your feedback that we have been able to blaze those trails, and we look forward to continually improve and innovate to make investing as simple and seamless as possible for every one of you.

Product Labeling

Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Long Term Equity Value Fund

An Open Ended Equity Scheme following a Value Investment Strategy
• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.
Quantum Long Term Equity Value Fund
Investors understand that their principal will be at Moderate Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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