The consensus player

KNOW YOUR FUND MANAGER

K Ramkumar's fund management style is a combination of investing discipline and flexible decision making.

Instant decision making is an essential part of a fund manager's job, more so if you are managing cash funds where the differential in performance is negligible, the constraints too many and the volatility in fund inflows unpredictable.

To stay in the race, a fund manager must have an ability to quickly understand the jigsaw of economic variables and study their impact on liquidity and interest rates.

For K Ramkumar, the 42-year old head of fixed income at SBI Mutual Fund (SBIMF) this is not only necessary, it is the key to survival.

He says, "The markets are changing fast, if you lose focus or delay your decision for a few hours, there are people who are waiting to eat your lunch." While an experience spanning a decade and a half helps Ramkumar keep pace with changes in the market, how does the fund ensure consistent performance?

The process at SBIMF
To ensure that an individual or subjective judgements do not create an imbalance, SBIMF has created a set of procedures to facilitate decision making.

They are not only based on the mandate of the investment objective or the orientation of the product but also governed by the rules laid down for the fund house.

For example, the fund house doesn't take an exposure to an NBFC unless the credit rating is AA+. "Irrespective of my comfort level with a company, if the credit quality does not fall within the rating requirements of the fund house, I will not be able to take an exposure," says Ramkumar.

Similarly the exposure to securitised paper is limited to 10 per cent of the fund size, while the exposure to short term fixed deposits is capped. While such measures are prudent don't they act as a hurdle?

"Freedom without boundaries especially at a time of intense competition, will end up violating risk parameters. If you cross the boundaries you will never know when to stop. Our processes and online systems ensure that risk and compliance parameters are met with," he says.

In addition to guidelines, Ramkumar also believes that group decision making is more effective than individual's choices.

Team effort
This science graduate, a CAIIB and a member of ICWAI has put in place a weekly system wherein a view on interest rates is arrived at after taking a consensus view rather than on a single individual's judgement.

After deliberations, the debt team agrees to a consensus range rather than a consensus rate. The range ensures that the fund manager doesn't go grossly wrong on either side.

When members of the team offer their opinion based on facts, the consensus opinion becomes an objective exercise rather than a prisoner of rigid view of members.

The team tracks the trends in the ten year paper both here and in the US and keeps an eye on global crude prices. The domestic factors in the last six months according to Ramkumar have taken a back seat and international factors have held sway.

"A medium-term interest rate view on the emerging scenario is a function of the call on growth rate," he says. Parameters such as inflation and credit offtake are dependent on the rate of growth.

The second factor is the performance of the global economy. Ramkumar believes that if it is behaving in a manner which is different than that of the Indian economy, it is a matter of time before the alignment takes place.

Unlike three years ago, Indian economy and companies are now more dependent than ever on the global economy.

Finally, what the regulator does on the administered rates, according to Ramkumar, also decides the interest rate view. While these guide interest rate decisions for fund managers how should investors zero in on the debt instrument of choice? 
 

RAMKUMAR'S PERFORMANCE One year scheme returns (in %) as on Nov 24
	Scheme	Category
Magnum Inst Income Sav	6.41	6.44
Magnum InstaCash	6.24	6.14
Magnum Floating Rate short term	5.94	6.30

Options for investors
For Ramkumar, liquid funds which tap money kept for transaction purposes, have emerged as a good alternative to savings and current account deposits.

The floaters, he believes are losing relevance due to uncertainty in the behaviour of the benchmarks""the MIBOR and the 1-year government security.

Further, the floaters go out of favour when the interest rates stabilise or are on a downtrend. Income funds are a good option provided the funds offer a cost effective option without any loads.

"We have seen investors timing the market in income and gilt funds and this is a better option than staying away from these categories," he says.

Fixed maturity plans, he believes, are a good option as they eliminate uncertainties like market risks. The prerequisites for investing in a fund? The sponsor and the long-term consistency of the fund house, fund managers' experience and the quality of the portfolio in which the exposure is taken.

Time challenged
The man who is responsible for Rs 6,000 crore of debt funds believes that the most difficult task is not about ensuring benchmark-beating returns for investors.

What is tougher is to allocate more time for family and to manage his own finances, which he is trying to address.

When he does manage to steal a few hours from his weekly schedule, this father of two tunes in to South Indian classical music and loves to guess the next move of the characters in the novels of his two favourite authors""John Grisham and Jeffrey Archer.