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IPO Scam-Interest earned on idle time!
Jul 28, 2005 11:45 AM 4167 Views
(Updated Jul 28, 2005 11:56 AM)

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In the good ole days when online trading was not conceived & brokers had the last word, the IPO/Primary Issues were a rage as there was some transparency of price!

So companies used to put out few thousand shares on a Primary issue & collect few hundred crores as application money; with their 'best' endeavour they used to make sure that the allotment & refund processing took no less than a month!

The resultant spare change from interest on application money (off over subscription by a few hundred times) used to be cool money, often bringing greater revenue for the year than whatever business the company was conducting.

The Regulators slept on it for a while (as usual) and came up with stock invest - a sort of bank guarantee on application but debit only for due amount on allotment. This becams a bigger badla than 'badla' itself, with people attempting to buy many fold more than their past, present & future worth for all time. Then came the nice technology gismos like Online, ECS etc making the turn-around faster, killing Stock Invest, for more than one good reason.

Well you may ask what the heck has it got to do with Mutual Funds & Kotak.....patience dude patience...

These days Mutual Funds have the gall to announce when they come out with IPO, ''we expect to build our portfolio, by careful research thru the first month and allot the IPO units in that period & then allow our units to be governed by daily NAVs from then on''...One would have thought, for all the marketing blitz, touting objectives of the scheme with a named Fund Manager et al, often for more than a month before IPO opens, you would expect the team to be ready to gun their way buying/building portfolios, as soon as their IPO cash register starts ringing.

Oh boy, NO. Here is the sweet money ''we have told those buggers (with full knowledge of SEBI) that it could take a month - let us make cool money on interest till then!''. Back to good ole days - may be its time SEBI brought back Stock Invest like instrument - a sort of Grand Escrow - to the benefit of buyer- only for Individual Investors, to remove the other ill effects of Stock Invest. The application money will be with this grand escrow and not AMC/Lead Manager/Custodian/Trust or whatever name by which the various branches owing unstinted alleigence to the same parent entity for eg KOTAK do the various 'segregated' function as 'mandated' by the Regulator. And this Grand Escrow will pay interest to the buyer & not let the IPO floater swindle the interest.

Did I mention Kotak? Yah! They are the worst of the lot; consistently taking the full one month - see your last Kotak MF application date, IPO closure date & finally the units allotment date on the statement, you would have received after more than a month!

Guys like Kotak follow the Regulator (SEBI) guidline too damn well, some times.

For eg., regulator says the AMC shall charge no more than 2.25% fee. So they rip you off to the hilt (2.25%), irrespective of whether the fund rakes in 100 Crore or 1900 Crore on IPO! Granted, there are certain expenses that will be proportionate to the volume of transaction for eg mailing cost etc - but the big chunks like marketing blitz or the TV adverts extolling the scheme (and at the end, to save the few, indeed pricey, seconds off the advert, they say hurriedly '' the offer....glibidichik..glibidichik..glibidichik..carefully.'' - incidentally oh boy, have they not complied with yet another 'guidline' of the regulator to 'declare' the risk factors!) are not going to escalate proportionate to size of what they rake in! Yet you me have to pay the same 'guideline' fee 'prescribed' by the regulator.

Kotak along with most others exploit such 'opportunities' to the hilt!

Indeed there are prices to pay for the 'superior' return that they work 'to achieve for you', besides for themselves!!

There aint such a thing as a free lunch for Customers - indeed ought to be a commercial reality - but oh boy, these guys device such small free-mini-lunch for themselves all along the great journey on The Gravy Train!!

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Kotak Mahindra Asset