Plantation companies

One of the big regulatory embarrassments for the government in the mid-1990s was the slew of ‘plantation’ companies that raised well over Rs 10,000 crore from gullible investors by promising incredible returns on teak, grape and strawberry plantations. It was only after these Ponzi schemes went bust that the government realised they were completely unregulated. Sebi was ordered to take on the job of regulating such “collective investment schemes (CIS)” and it filed 290 prosecutions against those that vanished. In the last year, a Delhi court has passed orders in 34 cases convicting promoters in most cases. Unfortunately, it is a bitter success because the penalties and sentences are shockingly trivial. Some have even been let off with a court admonition. Although over 250 cases are still to be decided, the trend is clear — there is little likelihood of investors getting even a small fraction of their money back.

Contra indicators

Early in 2006, mutual funds hit on the bright idea of launching ‘Contra Funds’. Three funds — DBS Chola, UTI Contra Fund and ING Vysya ATM (Against the Market Fund) — made their debut in quick succession seeking to beat the market through contrarian investing strategies. At the end of 2006, all three have lived up to their name if not their promise of earning higher returns through their strategy. While the market rose sharply in 2006, each of the contrarian funds failed to beat their respective benchmarks. UTI Contra was the worst performer and the only one to actually lose investors’ money. Launched on March 27, 2006 the fund has a negative return of -4.7 per cent, while its benchmark, the Nifty 50 rose 6.8 per cent in the period. ING Vysya ATM fund was launched on 20 February 2006 has announced a return of 3.9 per cent, while its benchmark, the BSE 100 rose 17.4 per cent. The DBS Chola fund launched on 14 February 2006 gave a 12.7 per cent return, which is relatively closer to the 14.21 per cent increase in its benchmark index — the CNX 500. Since fund managers get hefty bonuses in the US if they beat their benchmark by even one percentage point, these are poor returns indeed.