I was reading about Mirae Asset Nifty Small Cap 250 momentum 100ETF and the same AMC has Mirae Asset Nifty Small Cap 250 momentum 100 FOF.
The idea is choice for investors to either buy through ETF mode if they have demat account or thought the normal mf route.
My query is
Will the fund collected from investor through FOF is invested in the underlying stocks by a separate team or is the money received routed to the same ETF and units purchased from their own ETF.
Example - Investor buys 100 units under FOF – Cash received by AMC under FOF - AMC invests this through their own ETF route or is it invested separately.
The AUM under FOF is 113.52 cr and the AUM under ETF is 208.25 Cr
It is for people who don’t have demat accounts. In this specific case, ETF is better since you are also paying MF expense ratio + ETF expense ratio if you opt for FoF.
I think you have cleared my confusion with the above, 100.19% allocation in their own ETF. I think the funds collected from the FOF is used to buy units of their own ETF as by definition of FOF they can buy other ETF. I think this is what the above indicates.
When I check the ASK/BID the quotes are 30,000 and 50,000 units for sale/purchase. This triggered my thought that the market maker of the ETF is creating order.
If this is the fund flow, does this not tantamount to Insider Trading where the fund house knows they need to buy their own ETF and the ETF market maker (their own) can ask for small marginal increase in their bid price than iNAV.
Maybe I am thinking too much into this after the Quant fiasco.
Generally market maker is appointed by fund but does not work on their direction. They are two separate entity.
What you are saying is technically possible, but then it is not limited to only this fund. Any fund when they get inflow they know they need to buy a specific stock / index / ETF etc. so yes they can jack up price and take a cut. This is called front running, and that is what Quant is being investigated for.
There is no real control except for fear of Sebi investigation, which will keep fund in check. Also for FOF, if this practice is prevalent, it will start increasing tracking error and will start showing up there.
Generally a fund house will not indulge in such practice, but individual employee / fund manager can always do it, and you will never know about it, till SEBI starts an investigation.
