Why Large Cap Mutual Funds invested in Paytm IPO?

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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!!

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Basu Nivesh

Basu Nivesh

Basav is a SEBI Registered Investment Adviser (SEBI RIA) practicing the Fee-Only Financial Planning Service. He is a CFP (Certified Financial Planner) and blogger at Basu Nivesh. He services around 300+ satisfied clients.
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