They are management students of prominent B-schools, in their early-twenties and have an active social life but unlike their peers, they are already fund managers in their own right
They are management students of prominent B-schools, in their early-twenties and have an active social life but unlike their peers, they are already fund managers in their own right.
Naman Jain is a case in point. He is a 24-year-old MBA student with a big responsibility over and above his academic duties–managing money of about 146 of his batchmates. Jain, along with his classmate Swarnadeep Ghosh, heads an investment fund—Joka Advantage Fund (JAF)—at the Indian Institute of Management (IIM) Calcutta. JAF is a student-run fund that manages students’ money by investing it in the capital markets.
Jain took to the capital markets at a fairly young age. “My mother was a trader when I was in school. CNBC channel would play on our television from 9 am to 3 pm and that’s how I developed an interest in stocks early on,” he said, adding that he started investing in stocks right from the first year of his undergraduate studies. So, when Jain had to decide which extracurricular club to join during his business school, Joka seemed a natural choice.
In distant Jamshedpur, Pratiksha Amrendra Kumar is also part of a 20-member committee of a similar investment club at Xavier School of Management (XLRI). Kumar is a qualified chartered accountant and has ample theoretical knowledge of capital markets. “I wanted to gain first hand knowledge of money management. Joining SIF (short for student investment fund) enabled me to do that,” she said.
Like Jain and Kumar, students across business schools run such investment clubs that are largely a student initiative and include minimal participation from the college faculty. This is not just any other extracurricular activity for these 20-somethings to get extra credits. It’s serious business as the money of 100-150 students is at stake.
“We follow the markets on a daily basis and conduct investment strategy discussions at least twice a week,” said Sahishnu Sharma, a member of Niveshak investment fund at IIM Shillong.
Also, though the main objective is to create sizable profits for the investors, these young fund managers are mindful of sticking to the fundamentals in stock picking and not resort to risky methods, like investing in derivatives, to generate returns.
Take the case of 23-year-old IIM Bangalore student Pavan Teja. He has been trading in future and options (F&O) with his own money and even booked a handsome return of about 48% in the last year, but as in charge of the college’s investment fund, he only sticks to investing in stocks. “Given how volatile derivatives are, we (Teja and the other two fund managers) can’t take that risk with other people’s money,” said Teja.
Serious business
In most of the colleges, funds are raised each year from students by the fund members for a period of 10-11 months and the money is returned at the end of the term. Very few colleges revolve the capital year-on-year as it entails volatility with change in management team and complications of change in directorship each year.
In a lot of ways, these funds function similar to a mutual fund (MF). They apply the fundamentals of an MF, such as set rules about maximum exposure to a single company or sector, set up research teams for specific sectors and publish the fund’s performance and its net asset value, or NAV, periodically.
IIM Indore’s fund, called the Voyage Capital, has rules about allocation as per the market capitalization of companies, according to Soumyadip Poddar, a member of the club. “At Least 60-65% of the overall portfolio is in large-cap stocks. We have also capped small-cap exposure at 15%,” he said.
To ensure that fund managers stick to these limits, Voyage has a mandate that if a member violates any of the rules that leads to underperformance, the fund managers will have to bear the cost. “The members have to return the investors’ capital from their own pocket. This applies only when underperformance is a result of violation of rules. If the underperformance happens due to market conditions, there’s no such obligation,” said Poddar.
Even the process of fund manager selection includes the same criterion as that of a mutual fund–prior work experience in equity research roles, finance background or a proven track record in trading one’s own money.
At IIM Lucknow, all of the current eight fund managers of the investment fund Credence Capital have work experience in the capital markets. “The student fund managers are selected through a rigorous selection process and come with varied experience in the finance domain,” said Arav Sangai, a member of Credence Capital.
Saharsh Singhania, another member of Credence Capital, said, “I have worked at an international derivatives trading firm for over three years. The others have worked in investment banks, venture capitalist firms and equity research with specialization in certain sectors.”
When Sharma was cooped up in his home during Covid-19, he took to investing by closely watching his father’s work, who owns a Portfolio Management Services (PMS) firm. “He set up my portfolio and let me manage it,” he said. These funds managers also follow the ‘skin in the game approach’.
As for stock selection, sectors are allocated among the members and each one of them comes up with stock pitches. In some cases, like in IIM Calcutta and IIM Bangalore, the final investment decision is taken by the fund manager(s), who are typically final year students, but research and stock pitches are also accepted from freshers who are part of the club.
The student fund managers are not in it to make money for themselves and hence, no management fee is charged. “The main purpose is to generate interest in investing among fellow batchmates and give them a kickstart by generating index-beating returns on their investments,” said Anuj Agarwal, a member and CIO at XLRI’s SIF.
Most of these funds operate as separate entities registered either as an association of persons (AOP) or a body of individuals (BOI). “We plan to register our fund as a BOI, which will have a separate PAN and hence, all the regulatory aspects will be taken care of. As a standalone entity, the fund is not part of the college in terms of profit sharing,” said Ayush Singhi, a student at IIM Trichy. The finance club of IIM Trichy is in the process of launching its investment fund. The clubs that are not registered as a separate entity function as a trust fund wherein two to three demat accounts are opened in different club members’ names.
Stepping stones
For many of these young fund managers, this role of managing an investment fund in college is a stepping stone to a career in equity research or asset or wealth management. For instance, Kumar of XLRI has managed to secure a summer internship in an investment banking firm. “My role at SIF helped me land this opportunity,” she said.
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