Crazy for IPOs? The Paytm Saga, Wealth Managers and You

Shruti Sharma - Apr 01, 2022

You might believe that since there is so much information on investing is available on the internet, why would you need a wealth manager? A wealth manager guides you about how, where and when to invest; because a wealth manager specialises in giving customers suggestions based on his knowledge and their needs. While you may be aware of your needs and how to invest to meet them, you may not always have the time and specialization to do everything on your own.

                       “In simple terms, Rs. 1,00,000 invested in Paytm IPO is Rs. 25,000 now. Other newly-listed wealth destroyers in recent times are CarTrade, Suryoday Small Finance Bank and Fino Payments. They have hit fresh lows recently - far away from their issue prices”

The following are some of the advantages of hiring a wealth manager to help you with your investing and wealth management needs:

·       A wealth manager (WM) can help in drawing complete goal and investment plan or can just suggest specific investment products and vehicles, as per your NEED and PURPOSE. A comprehensive plan that addresses your major areas of financial concern: retirement, college planning, insurance, tax avoidance or any unexpected financial issue is truly desirable and should be made professionally. So, understanding your investment needs and chalking out an action plan is the contribution of WM.

·       Some investors try to save that small fee of wealth manager and compromise on the higher returns, overconfidence bias is on the play here. Apart from experiential expertise, wealth managers go through trainings and obtain certifications.  (Read more here) So, hiring a wealth manager to help you establish a portfolio, set goals, and track your progress could be an excellent option.

·       In a bull market, all investors feel like rock star and they forget to see the inherent risk of investing directly in equity. If you are driven by emotions and overconfidence bias, you may invest heavily in such stocks/IPO but your wealth manager will keep you grounded and will allow you take calculated risk only.

·       Many investors went gaga for Paytm, which turned out to be a wealth destroyer. If there will be a turnaround, only time can tell. But Paytm IPO offer price was 2150 rs and as on 31st march it was trading on 527 rs, that is, 75% down from IPO price.

·       In simple terms, 1,00,000 lakh rs invested in paytm IPO is 25,000 rs now,  Other newly-listed wealth destroyers in recent times are CarTrade, Suryoday Small Finance Bank and Fino Payments. They have hit fresh lows recently - far away from their issue prices.  

Other interesting observations about Paytm and mutual funds

·       The eighteen mutual fund schemes which have invested in the IPO of One97 Communications (Paytm) collectively managed Rs 2,10,299 crore as of October 31, 2021. The collective AUM (Asset Under Management) of equity and hybrid schemes towards the end of October 2021 was Rs 17,59,170 crore. Thus, nearly 12% of the AUM is affected by the movement of One97 Communications (Paytm) stock. Due to lower per scheme exposure, the impact could be limited though.

·       The average per scheme exposure of mutual funds has been 0.8% with the overall range remaining between 0.1% and 1.4%.

·       Nearly half the industry's exposure belongs to just one mutual fund house i.e., Aditya Birla Sun Life Mutual Fund for now. This goes to show how the philosophy of a fund house too plays a crucial role in portfolio construction, irrespective of scheme types. Thus, we reiterate importance of a wealth manager here. Investocafe also focuses on data-driven selection of mutual funds to maximize returns for their clients.

·       Therefore, if any of your mutual fund schemes hold shares of One97 Communications (Paytm), you need to be careful and track its performance more carefully in future. Not that they might be making steep losses, but they invest in such an overhyped and overpriced IPO is a cause of concern

           We have always suggested investors to avoid high-risk speculative bets in the primary market, whether it's a costly IPO or a less-than-unique NFO with no track record. Also, diversification and risk-reward quality of mutual funds are tested again; where despite exposure to these stocks, mutual funds are giving better returns than traditional or conservative investment vehicles.

Before you invest in any scheme, make sure it is suitable to your risk profile, investment objective, the financial goals you wish to address, and time in hand to achieve those envisioned goals. You can always reach Investocafe for any queries.

If you wish to select the best mutual fund schemes, Register at  OR Reach us with your queries.

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