One leading mutual fund is doing a series on Myth busting about mutual funds. It is interesting to say the least. Let us look at each one of them:

Mutual funds are very risky.

Let me reiterate, yes it is very risky. Imagine the head of Research of a big pharma company wanting to invest in a mutual fund. How will he go about doing this?

You think he will visit the sebi website? amfi website? No. He will ask a colleague or a friend about how to invest in a mutual fund. Suppose he has been investing for long, he will act like an adviser and tell him “buy xyz, lmn and def funds – I made a lot of money in all these 3 schemes”. What has happened according to the law in this country is he has been mis-sold mutual funds.

The person who advised (so what if it was free?) did not do a risk analysis, need analysis, suitability analysis, so clearly it is a big big mistake.

The other friend could have asked him to meet an IFA. Omg..again he is going to get a sub optimal solution. Remember the IFA is working for himself, not for you. He gets a commission, so he is likely to give you products where he makes more money….

So he goes to a bank. There are enough bloggers who say that the worst way to invest is by asking a bank RM what to do. So that is out.

So what should the poor guy actually do? Well, he should go through the prospectus of about 4000 fund offers (remember bloggers are driven by greed – for money, recognition, fame, but not by good intentions). Then learn about asset allocation, goal setting, debt markets and equity markets, …etc. and then decide how much to invest where. Assuming he takes one week to read 3 fund details, by the time he invests the money it would be the 2nd birthday of his grand child.

So let me reiterate. Mutual funds are risky if you do not know how to invest and you do not have a good adviser to hand hold you during your initial investment years. Then you learn, then you earn.

Once you have climbed up, you can either thank the ladder, or kick it. Choice is yours. Sure, you do not need him now.

 

 

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  1. I wonder what kind of people Subra Sir has met. Most of the time he talks about math illiteracy, asset allocation, compounding etc. This is basic and doesn’t take much effort to learn

    Why a person has to read 4000 MF documents? There are mutual fund review websites which categorise MF in categories. Investor has to just determine how much he wants to invest in each category and choose 2 or 3 mutual funds from the category to invest in.

    I wonder why Subra sir thinks this is rocket science.

    To be fair, I have learned one fact from this blog : Promoter’s integrity is important variable to check before investing. Also, life is full of choices/decisions. One has to make with possibility of error of omission.

  2. it is not fair to expect subra sir circle of friends and examples to be similar to what we experienced

    even here it is funny head of pharma company r&d is asking a friend which fund to invest? i can also say i know one double phd friend in pharma getting royalty income that is half is salary every month from his patents

    just take moral of the story thats all

  3. Hmmm.. I don’t agree, Compounding/Math concepts may be simple to some.. But i have met many people who just don’t get it. And some who understand it but don’t believe it can work…
    I’m not sure rationality is humanities strongest trait 😉

  4. @Sanjay: I was of the same opinion until I discussed with people around me. Software Engineers and Business analysts(?????) who had good education and having around 10 years of experience.

    Most people would listen only to counter you without understanding what has been said. Only few people would listen and try to understand. But connecting all the dots and bridging the gaps take much time.

    Of course, your experience might be different.

  5. people who have NO experience in talking to other people about their PERSONAL money and investing, have no business to comment on other people’s financial behavior…just accept YOU DO NOT KNOW..once you do not know, the ONLY thing you know is ‘you do not know other people’s investmet behavior

  6. The kind of people Subra referred above are very common. I work with M Tech, MBA guys and they find it overwhelming to choose funds. Most of my friends and relatives in cities like Mumbai and Pune have miniscule exposure to equities. Some of them are in corporate jobs and highly educated. It’s about their lack of aptitude/interest in personal finance, lack of time, etc. Therefore, they don’t invest in equity/MF in significant manner. I have a friend who is from IIM who is too scared to put his major savings in MF.

    It will be interesting to do survey of IIM guys who graduated 10 or 15 yrs back and see how much they are in equities.

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