SEBI, IRDA, Ministry of Company Affairs are all very concerned about the small investor. Tch, Tch..aaiyo pavam (bechara in Tamil) they make all the right noises. Let us hear them:

1. Make motherhood statements: when a regulator or a journalist makes mother hood statement like – ‘Subra do you agree that the retail investor should get better advice?’ – tell me what can one say? or ‘Do you not feel there is mis-selling in India – what do you say?…there are many such statements. ‘The poor retail investor’…’the retail investor gets taken for a ride’ …like Bheeshma Pithamaha..I only nod. I know my inclination to set these things right is gone. I just step back, smile and go back to blogging.

2. Blame the Distributor: Make no mistake the regulator, the investor, the manufacturer ALL OF THEM hate the distributor. The manufacturer likes the cheques that he brings. Tch, tch. Most manufacturers have their own in house distributor – owned differently perhaps but tied at the hip, if not joint at the hip. For Icici, Axis, Hdfc, Reliance, SBI, Kotak, …to name just a few – the sales happens through their banking/ distribution channel. How the commissions are shared should be worth investigating. However it will not happen.

3. To improve investor protection product design should be controlled, not the IFA! All industries have some product with which they ensure that the manufacturer (and not the investor) makes money. The brokers have F n O, the life insurance companies have ULIP, mutual fund industry has its IPO (I was recently amused to see a Las Vegas trip..did anyone notice?). I loved what a very senior CVC official said it is always ‘bali ka bakra’ (sacrificial lamb) never a sacrificial lion or an elephant!

4. Do investor ‘education’ programs: where the trader (in the guise of an investor) asks ‘If there is a tsunami again in Japan will the index go below 5578? And the anchor and the ‘expert’ explain why gold will continue to rock for the next 614 years.

5. Do investor protection seminars and ask them to open demat accounts so that they can keep their mutual fund units in dematerialised form. Is this an investor education program or a NSDL sales program, I am not clear.

6. I have also seen a brokerage firm which does ‘investor education’ program for housewives and end of the day asks them to open a broking account and a demat account. Hmm investor education program or trader creation sales plan of the brokerage firm….not very clear.

What should really be done:

Tell the investor all that he needs is a savings account, a term life insurance, one or maximum two credit cards and the cheapest index fund.

Sadly financial inclusion, financial education, etc. are all negative words! Just ask the ‘retail investor’ to keep out of harm’s way and know that compounding will work. It worked for his father, his grandfather and his greatgrandfather…and compounding does not go out of fashion. Just index and wait for compounding to work…

you must read this amazingly informative news item

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  1. Nice to know that you’ve acknowledged what I’ve been saying all along – you’re a Pithamah for people like us.

    My personal opinion is that given the low penetration levels and inefficiencies in the market, a good fund manager would be able to beat the indices.

    It would be a long while before even good fund managers or fund houses, would find it hard to consistently beat the indices even for a longer period.

    That may explain why the Vanguard has shelved its plans to enter India now.

    I’m also curious as to how active fund management is stronger even in U.S. despite Vanguard. It looks like the AUM of active fund management surpasses those of passive ones. May be you can explain this.

    Media enjoys advisor bashing because they cannot afford to bash the manufacturers who bring them huge advertisement revenue.

    Personal financial advisory is largely common sense, with reasonable domain knowledge, establishing a long term relationship based on trust and most important inculcating right emotional discipline and temperament into clients while they deal with their money and financial goals.

    It is not as complex as some make it sound. Ofcourse, the complex one makes it sound the more rewarding it is.

    Investor awareness programs are mostly done by broking houses and less said is better about these programs.

    Honestly, what future you foresee for advisors like us who want to be both honest and make a decent living out of the profession.

  2. I spoke to an AMC official after reading this blog. He told me today that in a fast growing economy and meagrely penetrated market like India, active fund management is preferable. Once we move to lower economic growth rate due to achieving a higher base and large number of households start participating in the markets, which may take a long time, then only the case of passive fund management would become stronger.

    A high growth economy would reward active fund management and a low growth or saturated economy would be more rewarding for passive fund management.

    He may have a vested interest in saying this. Still I feel there is some logic to this.

  3. btw it is interesting to have munger quote on same which he said for us mf industry , let see indian mf stands where

    Then Munger weighed in: “Mutual funds took bribes for the proposition of betraying their shareholders. It was like someone coming to you and saying, “Why don’t I kill your mother and we’ll split the insurance money?”

  4. ashwam naiva , gajam naiva, vyaghram naiva cha naiva cha
    aja putram balim dadhyam devo santhi upasanaha

    aja putram i.e kid – not goat.
    easiest to sacrifice!

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