Not sure how many of you have read ‘Straight and Crooked Thinking’ – it is a book about writing and speaking in a complicated / simple way.
Now let us look at the mutual fund industry:
Entry loads have been abolished.
There have been a lot of redemptions in the equity schemes.
There has been a ‘huge’ fall in the number of folios.
When you see such articles in respected newspapers, and magazines…you are being led to believe that:
Mutual funds create relevant schemes, they sell appropriately, however the agents are asking the clients to redeem because they are not getting any commission. And now the regulator should re-introduce entry load.
Far from the truth. The industry is still very, very profitable especially at the top. It makes no sense at all for the distributor to ask existing folio holders to redeem – so that is a stupid argument.
Most of the folios have been added in ‘gold’ which has been sold as a flavor of the ‘month’ scheme.
Too much of the industry aum is lying in Infrastructure funds (sales pitch – look around in India, will there be no demand for Infra…so Infra funds). One of the biggest crimes in investing is ‘paying too much for growth’ and infra funds and a few Infra companies are guilty of pathetic management.
Redemptions from Infra funds could be happening (have never been convinced about sectoral funds where many fund managers are unable to define sectors…)
In all this have the fund schemes performed well?
Ok to put it in the words of a bank director : ‘From when did fund performance matter for getting an aum?’ So many schemes have such poor performance that you may not even believe that such schemes exist. All fund houses have their share of poor performers..
So do not take numbers as is provided by the press. Normally it is meant to scare you, the regulator, …etc.
Damn it, if the mutual fund industry was so unprofitable why are Nirmal Jain of Indiainfoline, India bulls, Edelweiss, Axis bank entering this business now? Or why 23 others waiting to get the license?
Or why inspite of so many entrants we are not seeing fund management costs coming down? Well frankly the main stream media does not have time for such questions. In a worst case scenario they will turn around and say ‘frankly for the retail investor how does it matter’. Chuckle, chuckle. So it will be another story on ‘How SIP works wonders for your portfolio’ based on past numeric data. With a comment – ‘past performanc….’ Then the reader can watch IPL.
A few serious blogs though are asking some basic questions – and frankly are struggling for answers because there is no one single data warehouse from which you can find out
– how many SIPs are added every month? (industry sources say 200,000 new additions – I have no clue)
– how many gold folios are added?
– debt schemes are perhaps as profitable for a big fund house – fees is still a %age of Aum…
so read on…here is one interesting article on the mutual fund industry
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