Should Mutual Fund Investors Track Bulk Trades in the Stock Market by AMCs?
On October 6, Nippon India Mutual Fund (NIFM) bought 50 lakh shares of Rategain Travel Technology, a provider of SaaS solutions for travel and hospitality. In another wholesale sale on September 27, NIMF sold 1.7 lakh shares of TD Power Systems while DSP Mutual Fund bought two lakh shares of Safari India. Stock prices generally rise or fall in response to wholesale trades. But why do mutual fund companies make such transactions and do they mean anything to mutual fund investors?
Mutual funds buy stocks of different companies based on their investment objectives. The decision for such a transaction is made by the appointed fund manager. Quite often, Asset Management Companies (AMC) also execute block trades. There is a joint sale when the total quantity of shares bought or sold on the same day is greater than 0.5% of the share capital of a company.
“AMCs enter into wholesale trades to make the most of market volatility. They prefer to use sliced trading throughout the day and they are able to reduce the overall cost of acquisition and negotiate a better price,” says Rajani Tandale, Senior Vice President, Mutual Funds at 1 Finance , a personal finance consulting firm.
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Should Mutual Fund Investors Track Wholesale Trades?
“Mutual fund investors are long-term investors. They don’t need to track wholesale trades because they have already handed over their investments to experts like fund managers. AMCs conduct a thorough study to know the opportunities and risks of any business before entering into wholesale transactions, and these can be short or long term,” says Tandale.
Anup Bansal, chief commercial officer of Scripbox, a digital wealth management platform, agrees. “If you prefer mutual fund investments to stocks, tracking the bulk details is not essential as that is the job of the fund manager and the AMC. However,
AMCs will have wholesale trades based on a stock’s liquidity, fund strategy and fund size.
What should MF retail investors follow?
Retail mutual fund investors should follow general fund fundamentals, such as risk-adjusted returns, fund manager track record, downside protection, and more. on risk-adjusted returns, downside risk, etc. says Tandale.
Does this make sense for stock market investors?
Even for stock investors, making a decision based on wholesale trades without research would not be fair.
“Wholesale transactions are often not suggestive and only indicate part of the accrual of interest on stocks. Pursuing stocks as investments is not a wise approach to building wealth and may not be successful for very long,” says Tandale.
Experts say wholesale transactions are an indication of concentration of interest. AMCs thoroughly research each stock before buying or selling stocks in the market. This gives an idea of where that security or sector is headed to individual investors.
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However, not all wholesale trades indicate long-term investments or price direction. In fact, AMCs perform intra-day bulk trades while promoters participate in bulk trades to adjust their cross holdings while changing hands.
“The effect of long-term wholesale trading is negligible. If you invest in stocks or mutual funds according to your goals and risk appetite and have a well-balanced portfolio, over the long term, your returns will be in line with your asset allocation,” adds Bansal.
- Not all wholesale trades indicate price direction
- Wholesale trade tracking may not give a clear picture of the true quality of the fund
- Monitoring wholesale transactions is the job of the fund manager and the AMC
- AMCs enter into bundled trades to take advantage of market volatility