For somebody who has spent a long time watching the mutual fund industry I am not sure whether it is going to be a case of “I knew this will happen” or even worse ‘I told you so’….
How does a fund scheme get launched – rather why? Simply because the sales force has never been trained. The only way distributors (all shapes and sizes) could sell was by saying ‘Here is an NFO, available AT PAR…so buy it’. What was unsaid was ‘I get 4% commission, an ad in my newsletter and a trip to South Africa’. The CEO was happy to go to the press and say ‘We collected X amount of money’. And there was a booze party and everybody was happy.
Some fund houses resisted launching schemes just because others were launching, but some succumbed. Hdfc and Templeton are two fund houses who resist temptation for a long time. However they too succumb. Templeton was perhaps the last fund house to launch a ‘Technology’ fund, Hdfc launched an ‘Infrastructure’ fund – giving up their avowed principle of ‘NO focused /thematic funds’.
Why is everybody launching a Gold fund? Easy to get SEBI approval. Not too many questions – imagine launching a ‘Value’ fund. Not many fund managers understand what such funds are supposed to do – and VERY difficult to explain in the prospectus. Also it is the flavor of the month – and easy to tackle pressure from the sales guys – ‘We do not have a gold fund – only that sells in this market’.
More importantly all these funds are EXPENSIVE – you pay 2.5% as costs for holding GOLD. This is plunder. Historically gold gives about 8% return – and if you pay 33% of your TOTAL EARNING as charges, I would love to be an amc shareholder 🙂 rather than an unit holder. So Gold is really Gold for the amc. And as prices keep going up, you make more money by doing nothing.
Mr. Sinor we need about 42 schemes in Gold so that distributors can mis-sell. And then we can crib about the distributors. Fund houses which already have / are launching a Gold scheme are: Kotak, Uti, Benchmark, Reliance, Quantum, SBI, Axis, Tata (of course!!), DSP Blackrock, Birla, I Pru, Hdfc…..30 more to go. Quite a joke.
They perhaps give into sales pressure and do launch it. Historically when all fund houses finish launching the sector crashes or at least starts giving bad returns. I remember seeing 2-3 corrupt / incompetent fund managers plundering their Tech portfolios – for obvious reasons I cannot name them. At least in Gold these fund managers (Oh…they are still around and in very senior positions)..cannot plunder the schemes except by charging 2.5%.
All that glitters may not be gold. I need to finish this post soon – somebody is calling me for a concall on GOLD :). What a coincidence 🙂 🙂
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