IIM Lucknow Students’ Fund Beats NIFTY Yet Again for the Fourth Consecutive Year
Students’ fund gets 17.96% returns on Equities, 25.84% on Derivatives against 5.56% gain in NIFTY
As has been the tradition at Credence Capital of beating the markets consistently, this time has been no different. With its annual closure of the fund for the batch 2009-11, a clump of students at the Indian Institute of Management, Lucknow has yet again managed to outperform the markets by a significant margin. IIM Lucknow students pooled in money to enter the market in July 2009, stayed invested till January 2011 but managed to exit before it was too late. They claim the fund has managed to outperform the benchmark indices.
‘Credence Capital’, a fund set up with voluntary contribution from IIM Lucknow students came into inception in July 2007 and has been going from strength to strength. This is its fourth year of functioning and has already been hugely popular across the financial industry. The class of 2009-11 contributed a minimum Rs 5,000, and there was an upper limit of Rs 50,000. The fund also witnessed intermittent lumpy contributions. But on January 31, 2011, their efforts paid rich dividends. The equity fund contributed an impressive 17.96% return, while the derivatives fund gave a stupendous return of 25.84%. The Nifty, the broad barometer benchmarked, returned just 5.56% in the period. This year the fund also witnessed a launch of a new offering for the IIM students in terms of investment opportunity in ‘Currency Trading’.
“Our fund was less risky than the Nifty, but gave more returns,” say the Credence fund managers, third-generation investors. Credence is no run-of-the-mill kitty corpus but a stickler to rules, and posted newsletters giving a summary of what happened in the past week and expectations for the coming one. The newsletter also analysed F&O data and gleanings are emailed to all investors, every week. Managing other people’s money responsibly and be accountable to their class mates was a great learning experience for the budding fund managers which was akin to any industrial exposure. They periodically released the fund’s NAV to their class mates. NAV is the value of a single mutual fund share, based on the market value of all securities it owns, minus its total liabilities and divided by the total number of shares issued.
IIM professors Vipul and Manoj Anand guided them, after the institute faculty realised that making them manage public money and doses of theory could mould students into excellent fund managers. More than profit maximisation it was risk management and preservation of capital that was the key. It is not that they always made money. Strict stop-losses were crucial to success. By putting 5% to 10% stop-losses and laying emphasis on supports and resistances based on technical analysis were critical. This is purely student initiative in which the institution is not directly involved. Each student as a part of their investment strategy, the fund managers of Credence Capital applied both fundamental and technical analysis to build the portfolio. Apparently, being a good team player was a major criterion, as every investment decision had to be approved by the majority of the members in the investment committee. Egos had no place at all.
The students followed a systematic procedure involving selection of fund managers, appointment of a committee to approve investment decisions, updating student investors on past week’s developments and expectations for the next week. Selection as the fund manager of Credence was no walkover as they had to go through the grind managing a notional fund, and outperforming the rest of the students before being selected as one of the five fund managers for Credence. They had to explain the theories behind every investment decision. The results from the team tasks were also crucial to the selection.
Seniors are just getting into the big, ruthless world of investment banking. Vaibhav Gupta is joining Goldman Sachs and will be handling the equity research for the firm, while another senior, Rahul Pandhi is joining Citi Group. Another student, Prashant, a BTech from IIT Bombay, will be joining JP Morgan this year. Saurabh Agarwal, a BTech in Computer science from IIT Kharagpur, will be joining IIFL New York in the structured products group and will be creating exotic financial products for the market. Abhisake Saha, another IIT Kharagpur alumnus will be accepting an offer from ICICI Bank. Aravind Gattu and Abhishek Chhajjalani will be joining HDFC Treasury and Accenture Business Consulting respectively.