There is a big problem all distributors face. When the product becomes good and has a successful track record, the distribution margins reduce. So it is a catch 22 situation. You work hard, collect money for a fund house, they employ a good fund manager who delivers good results…so the scheme does well. Then the fund house says – no foreign trips, no booze, no…..

What does a distributor do…..this is a REPORTED conversation. You would have heard parts of it on television, from your distributor, or read it in articles in magazines. The media also DOES not like the funds which do really well – their media spend also goes down. They do not offer ‘intelligent sound bytes’ (ok Taleb calls it an oxymoron) on all topics…here it is:

Client: I wish to start a SIP of Rs. 100,000 for 10 years.

Distributor: Yes sir, I would suggest ABC supernova fund.

C: Why not Hdfc Top 200?

D: Sir it is a good fund, but the corpus is become too big sir.

C: So how does it matter? It will get better attention from the fund manager, media, analysts, is that not good?

D: No sir. The nav of this scheme is already at 190 – ALMOST 200, so it is expensive. The fund I am suggesting has an Nav of just Rs. 31 sir. You see by the time 31 becomes 62…200 cannot become 400 no?

C: Arre, Subramoney says Top 200 is a good fund because it is a well managed fund. He never talks about NAV.

D: Sir I do not know who is Subramoney, but sir you know that I do not recommend expensive funds. That is why I am recommending ABC supernova fund, from ABC fund house.

C: Hmm I agree – I have seen with shares also..a small share can become a multi bagger, a big share cannot. Subramoney says he had bought Gillette at 37 and now it is 2300. If I buy at 2300 will it be a 100 bagger, it will not!

D: Yes sir, that is what I mean…Sir which scheme is Subramoney recommending now?

C: that is the problem. He does not recommend. He only ridicules his readers for making mistakes. Like this conversation he may put it on the blog.

D: Sir where does S invest his money?

C: Oh he has 80% of his money in direct equities – and I believe he bought even last week…but I do not know what.

D: Why do you not ask him for a peek into his portfolio? Even big investors like Rakesh Jhunjhunwala allows it.

C: Never asked. However from a reading of his blog, I know the following funds exist in his portfolio: Hdfc top 200, Hdfc Equity, Hdfc Prudence, Franklin India Blue Chip, Hdfc Tax Saver, Franklin India flexicap, Franklin Prima.

D: OMG….sir these are such expensive funds!! All of them have an NAV of 200+. Sir, he is misleading you. He must have bought it long back.

C: Hmmm

D: Sir he must have bought it 12-14 years ago when these funds were cheap -say 15-20 Rs. Now he must be asking you to buy, so that he can sell.

C: OMG I never thought of that….

D: Sir you should know which websites to trust. Please visit out website -ABC fund house. You can even visit some independent websites sir. Last week we were rated 4 star. It shows the scheme NOW has a great potential.

C: arre, this also Subramoney says…’Ratings are backward looking, not forward looking’…and you are saying…

D: Sir people like Subramoney may be knowing fund managers personally so they may be investing in some schemes…we have to stick to cheap fund houses sir.

C: Now I see…your presentation is so nice…see last one quarter ABC Supernova fund has performed better than hdfc prudence fund! So indeed ABC Supernova is also a performing fund…it has done better than Hdfc prudence!

C: I agree…please give me ABC Supernova fund form….and here is the cheque for Rs. 100,000.

 

 

 

Learning? well i want comments on the learning please!

 

 

 

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  1. rationality tossed…

    1. Missing the point of fund manager’s credential and track record..
    2. Fund management charges and corelation to the market not covered.
    3. How to prove if a fund is expensive? NAV is just an indicator..
    4. Short term track record considered for performance comparison…

  2. Subra Sir!
    I agree with last comment: “Short term track record considered for performance comparison…”
    I am also facing a similar dilemma these days.. however the person advising me on financial planning is not a distributor but a purely a financial advisor… but I heard similar sort of statements from him!!!!
    I am a beginner in Investing…. Can I have privilege of asking you personally for some guidance!!!

    Regards,
    Pankaj

  3. The following may look like contrary statements. As Pankaj said, its a dilemma. Worldover, there are many funds whose girth has worked against it. But there have also been funds which girth has not affected its performance. IMO, the former is probability than latter. The Fund Manager holds the key.

    Linking NAV to fund being expensive is, to put it straight, just bullshit. For all practical purposes, NAV can be totally ignored.

    Disclosure: Invest in HDFC Top 200, but % of investment in that fund has come down in my overall portfolio vis-a-vis 5 years back.

  4. OMG ! Simply awesome and funny !. My learnings
    Comparison based on corpus, NAV, short term performance is flawed
    Fund units are not “traded” (so A selling, B buying doesnt matter)

  5. Subra sir

    You are slippery as ever than the biggest fish. I believed you had just 4 MF but now mentioning 7MF in the portfolio.

    What i really wonder is how you resisted not selling Gillette all these years.

  6. i have never said anything about how many schemes – 2 houses and one fund manager. That has never changed. If one of the houses call and say..’look at this new scheme, sure I do…but it takes 20 horses to pull my money to a new scheme..unless there is justification’.

    For eg did not invest in I pru infra, hdfc infra…prefer their bigger schemes – almost always. Did invest in Mid and Small cap ’cause the fund managers theme sounded good. Lucky, fund did well.

  7. Hi Subra Sir, I survived these kinds of tricks, credit goes to your’s and some other non-biased websites. Sir I would like to ask one question. Do you know any Mutual Fund which invests in Options? and If someone wants to have some part of portfolio into High risk High gain zone, then what’s your take?

  8. 1 Pure Largecap+1 Large and Mid+1 Multicap+1 Balance is enough.Goals at a distance of atleast 10-15 years away and contributing in few well reputed scheme managed by bright brains in industry is enough to achieve Lifes goals.This is what i learned from sir .

  9. Checking a fund’s NAV before investing is absolutely futile I believe.

    Pankaj, You may want to reevaluate your Financial planner’s credential.

  10. Subra Sir, Some more wise things that I keep hearing
    1. ” HDFC Top 200 and HDFC Equity are similar in terms of investing style, Fund Manager, portfolio e.t.c. So one should not invest in both”
    2. “One should not invest in more than one fund from any fund house ”

    The Problem here is that I love HDFC Top 200, Equity and Mid cap funds.So this puts me in a dilema.

    Your thoughts on this please

  11. karthik,

    partly agree on 1. Styles are somewhat similar..is true.

    2. Completely stupid idea…I do not see any risk of under or non performance – which is the biggest risk of investing!

  12. Thanks Subra Sir. I wanted to ask this during your presentation in Bangalore but somehow missed it. Thanks for the quick response.

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