O M G!! You are saying good things about mutual funds?!

This was the reaction of about 40 people I met last fortnight at a ‘pre-wedding’ food party at a Gujarati friends ‘so called’ party. The food was amazing and for a non 5* setting Rs. 1900 per plate was what I thought well, too much. Considering that the food did not even contain onion or garlic :).

However as is wont the discussion went to ‘investing’ (between these 40 people in the room they could have been holding a small portion of the Indian market capitalization!!). These are not the guys you meet in the day to day business – almost all of them would be having a net-worth in excess of Rs. 20 – 25 crores..and a few of them could ad at least one zero to it. One of them is a huge builder whose son’s wedding was attended by a big part of the Maharashtra state cabinet and a couple of Ministers of the Central cabinet. Obviously when these people invest / trade in equity markets they are dependent on their CA, an analyst, a portfolio adviser, …and some of us who give ‘vishesh tippuni’ from time to time.

Now in a conversation with a group of 3-4 people I heard stunning stories of hammering the index by a mile even in this decade of 2000 to 2010. This period of course saw the greatest every bull run, then a great fall o f 2008, and a spectacular come-back of 2009. To them the ‘Index’ did not mean anything. For example one investor had invested in Siemens which he exited in 2007 Dec / 2008 Jan to invest in a huge office property. He calls this sheer luck because prices in that location had not fallen after his purchase. Even ignoring such transactions these people have got far, far greater than the Sensex. Their take on mutual funds:

a. Integrity of fund managers is impossible to monitor the way we monitor our portfolio.

b. Forget corruption, how do we monitor competence of fund managers?

C. WE HEAR OF fund manager corruption FROM corporates who place shares with them….what should we do? How do we react?

d. When our broker asks us to buy a share in most cases he gives us a price at which a particular fund is planning to buy a stake – what should we do?

These people have all kept it very simple. Their portfolio consists of some bonds / bank fixed deposits / post office savings – the income from this technically can take care of their day to day living expenses. This allows them to buy equities – shares like Gillette, Colgate, Siemens, Tata group shares, Birla group, other Mnc bluechips are in almost all their portfolios. Immaterial of what happens some of these shares will never go out of their portfolios – 5-7 years of under-performance does not bother them. Principally they do not trade -but 4-5 of them have given their money to one broker for ‘trading’. This portfolio they review once in a while and feel good (i guess!).

One very philosophical statement I heard was “when too much money is accumulated in one place the government will try to get something out of it”. Look at the ‘trail commission’ being used for ‘investor education’ – goddammit, it should NOT BE CHARGED…WHO the @#$%^ is amfi to say that I should pay for ‘investor education’ from MY MONEY. Damn the investor who does not get educated!

2-3 of them are so against going short that they do think of people who go short as people who should be banned!

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  1. I think the best way is to work hard, earn and save in secure fixed return instruments.

    Inflation eating into your savings? Wark harder, earn more, spend less and save more.

    When I see corruption in my profession, why should I expect anything else in finnancial service profession? How is it possible for me to find a mutual fund manager, understand the complexities of companies, balance sheet, annual report etc.?

    I think, if you are a layman, put majority of your savings in debt, minority in equity (which you should be prepared to kiss good buy). If you are self employed, put significant part of the equity component in you own business / profession.

  2. I more or less agree with what they say. The transparency is indeed an issue. The call a fund manager takes in motivated or not, is there a case of conflict of interest etc is not known in public domain.

    I have always believed that most of theses businessmen, specially Gujju, know how to make money. We all can give gyaan on diversification, putting money in equity blah blah, but they make money more than ALL of us. Simply because they stick to real estate and gold, if they invest in stocks it is for long term and re-invest a large part of their proficts in their businesses.

  3. Low cost Index Funds is the answer to all those question…..no need to TRACK…. fund manager…their integrity….if they are corrupt or not….past performance and anything and everything else you can think about them….No need to TRACK. ..individual companies. ..thier balance sheets…their management. …just index…and rest assured that market will pay you for the risk you are taking on equity as asset class 🙂

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