When Goldman Sachs Asset Management (India) Ltd acquired Benchmark Asset Management Co. Ltd earlier this year, I couldn’t help but remember my first meeting with Sanjiv Shah at his old Mumbai office in 2001, days before the launch of Nifty BeES (the AMC’s first scheme), trying to grasp how an exchange-traded fund (ETF) worked. Fresh out of college and into my first job, I was busy studying the Indian mutual fund (MF) industry and this was a totally new animal; I wondered whether investors would understand at all. Shah, now co-chief executive officer at Goldman Sachs India AMC, was the executive director at Benchmark AMC then.

A little over 10 years later, we have a thriving market for gold ETFs (Benchmark AMC was the first in the world to conceive the idea of gold ETFs but its draft offer document was stuck at the capital market regulator, Securities and Exchange Board of India, or Sebi, till the world’s first gold ETF got launched in Australia in 2003; Benchmark launched its version in 2007) and a reasonable and growing awareness about ETF; the cheapest equity fund on the MF street, thanks mostly to Benchmark AMC. While it no longer exists in its unique and original form (Goldman Sachs will also manage actively managed funds), maverick fund houses like it need to be around. They walk a different path, create a niche and offer unique products. They may never become giants, but in their small and quiet existence, restore sanity in an otherwise cluster of clones.

Take Mirae Asset Management Co. Ltd. Gone virtually into hiding, this tiny fund house created quite a stir in 2008 when two of its schemes, a liquid and an ultra short-term fund, made losses. In 2008, when markets over the world collapsed on the back of the global credit crisis, investors made a rush for redemptions. To generate cash to pay investors, MFs sold off their underlying securities in panic at throwaway prices, generated whatever cash they could, but at a loss. Since debt markets in India are highly illiquid, many sponsors of AMCs or AMCs themselves bought out securities from their own debt funds at face value and funded the schemes’ losses.

Mirae AMC was an exception. Neither the sponsors nor the local AMC bought any of the scrips that were a part of Mirae’s debt schemes. The fund house tried many tricks in the book to generate cash; nudging its sales teams to bring in fresh money to trying to get its international units to invest in liquid funds here. Nothing worked. Its share capital of about 203 crore was not enough to take care of redemptions that were, I am told, in the range of 1,000-2,000 crore a day, in those turbulent days. When Mirae finally took a stand to not absorb losses on its books and instead pass them onto investors, it finally entered the debt market, sold its scrips at losses, and passed off the losses to the investors.

The MF paid a heavy price. It’s assets under management (AUM) fell to 199 crore in just three months, from about 2,500 crore as on September 2008-end. Today, with an AUM of about 500 crore, its standing is 38th of the 45 fund houses. Few distributors sell Mirae AMC today as aggressively as they sell other fund houses and large investors prefer to stay away.

But by refusing to absorb the losses on its own books and passing it to investors, Mirae did the right thing. MFs are a pass-through vehicle. Investors get to take not just their profits, but also their losses. While AMCs or sponsor companies absorbing schemes’ losses may save investors in the short-term, it sets a bad precedent. Investors, then, always come to expect protection in troubled times; something that a MF isn’t supposed to do.

More so, Mirae did not suffer credit risk as its portfolio quality was among the best, unlike many other fund houses that had poor quality paper issued by real estate companies in their portfolios. Why, then, should Mirae AMC absorb the loss because of risks that were beyond its control? I am told that Mirae AMC eventually compensated about 30-40 individual investors of its liquid funds, who had suffered losses then, of the little money it generated later in markets, as a goodwill gesture. However, I could not independently verify this fact.

Quantum AMC, India’s first no-load fund house, is another fund house that deserves its place in the sun. At a time when MFs pampered distributors to the hilt into selling their schemes, Quantum AMC did not pay a penny to distributors. Its philosophy—to instead nudge distributors to ask clients to compensate them—was laughed at as distributors refused to hawk Quantum AMC. Till, of course, Sebi abolished entry loads in 2009 that forced distributors to change their business models. In the meantime—and amid volatile markets—Quantum Long-Term Equity Fund returned close to 10% (with one of the lowest expense ratios in the industry; 1.25% compared with the industry average of about 1.9%) in the past five years, topping its category and far outperforming the category average (0.79%) and BSE 200 index that actually lost money. From no distributor in 2006 when it was launched, about 40 distributors today sell Quantum AMC. The fund house was also among the first ones to offer its schemes over the Internet with minimal paperwork, whether you invest for the first time or in repeat, something that other funds are now actively looking at.

And finally, we come to Benchmark AMC. Much has been said about it in the past. The fund house is, of course, no more in its original form. But for a fund house that, in its own way, brought the industry’s focus to costs by itself delivering low-cost products as also being the first in the world to conceive gold ETF, Benchmark AMC—like other maverick fund houses—made a significant contribution. As much as this industry needs giants with footprints all over the country, the MF industry also needs mavericks to keep the MF street sane.