I keep reading, teaching and interacting with a wide range of people..and I keep hearing some things and some of them are well entrenched myths. Here is an attempt to remove some of the myths:

  1. The Mutual fund industry is so well regulated with Directors, Trustees, Auditors, Regulators that your interest CANNOT be compromised: Nice myth. The more educated, and bigger the people and higher in the hierarchy the more confident they are about getting away with murder. And they do. Be careful.
  2. You get what you pay for: when you buy a Dove soap or a Colgate Total toothpaste you can see what you are buying. In the financial services space there is nothing to assume that YOUR interest is being kept in mind. Yes you are an important customer but you get good unbiased service only if you ask for it. Sadly, there are no fixed ‘good adviser characteristics’ that can be created for all situations. Tough indeed.
  3. Conflict of Interest: when a group has a bank, a merchant bank, a brokerage house, if you think that they put your interest before the interest of their vociferous big corporate clients, venture capital arm, HNI customers wanting an exit from a shit placement that your merchant banking arm did, etc. you are living in a fool’s paradise!! There is conflict of interest and you are suffering.
  4. Buy and Hold works: Sure buy and hold works, however hold is an active hold. You need to remove the weeds and water the plants. If you do not want to do all that be in a mutual fund. Your good buy in 1984 may be a best sell in 1994 and may have ceased to exist in 2012! So it cannot be blindly held. Yes in case of Colgate that has been held since 1977 the monitoring can be less than in Suzlon bought last week at Rs. 22. I cannot get up in 2045 and say “Oh Suzlon was a mistake”. I have to see the numbers regularly quarter on quarter and DECIDE ACTIVELY that I am going to hold it for the next quarter.
  5. You need to invest with a big well known name: Actually to the contrary! The smaller fund houses in India are doing a better job. However, advisers are not sure about client reaction to suggestion of smaller names like Edelweiss, Quantum, Motilal oswal. And there is the big, big, big worry about fund house and fund manager integrity. So in most cases, the adviser should err on the side of caution and stick to the time tested big fund houses (let us accept it as long as they give good returns, nothing else matters!!)
  6. You will get rich by Investing: Many people think that 20% is the MINIMUM CAGR to expect from equity and their Rs. 50k sip is going to make them wealthy!! Go and smell the coffee. Getting wealthy is a multi decade, multi generational thing. To think that you can get a high teen return in equity for the next n number of years is amazingly foolish. It CANNOT HAPPEN – forget whether it will happen.
  7. Finding a good adviser is simple: well, a good adviser should outline the conflict of interest, and explain to you how he has been able to reduce / remove the conflict of interest.

more to follow…

 

 

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  1. Subra sir,

    “To think that you can get a high teen return in equity for the next n number of years is amazingly foolish. It CANNOT HAPPEN – forget whether it will happen” – bit surprised to hear this from you.. can you please elaborate?!

    Thank you!

  2. Dear Subra Sir,
    I am a bit concerned about your 1st myth about Mutual Fund industry. AS a retail investor I can only tyy my level best to select good Mutual Fund and keep investing for long term, keep reviewing my portforlio may be every 6months or 1yr or 2 yr etc, nothing else is in my control so how do we ensure the money i have invested is not getting mis used by the various entities in Mutual Fund industry….

  3. Sir,
    regarding point 1, if i am getting it correctly, mutual funds are not safe to ivnest( i am ok for volatality risk as it is equity). as most of us are investing through MF’s in equity, this point scared me.

    i believe why so many people investing in real estate.

  4. Yes Renga and Suresh

    do not be lulled into believing that everything is hunky dory. Shady things do happen..but over a period of time all that will speak on the performance…

  5. I also believe that “ICICI Prudential Balanced Advantage Fund” has bought inflation indexed bond from sister MF so that performance of sister MF improves. Right now inflation indexed fund is giving low returns because WPI is negative.

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