Improving Investor Disclosure

SEBI actually does a good job of information disclosure for investors – IPO or a mutual fund. However being a regulator and with all the baboo(n)s running it obfuscation is the name of the game. Take a simple thing like “Past performance is not an indicator of future performance” – or something to this effect. Sebi has still allowed rating of mutual funds and that is perhaps the biggest racket as far as the retail investor is concerned.

Details of mutual funds, how they vote, the Offer document – all these are so poorly worded and structured that I challenge an ordinary accountant working in SEBI will not make head nor tail out of it. Some of us who have made a living ‘teaching’ about the KIM and SID by now know what details are there, but most of us do not read the horrible document. AT least I do not.

Sebi thinks that there should be more disclosure. Sure if you keep putting more info you can go to sleep as a regulator. However, to think that people are reading it, understanding it, and using it is living in a fool’s paradise. It is time for some dramatic, harsh changes.

Thanks to our media, 99% of the people I meet tell me that the Mutual funds are LESS risky. Great. Go tell them that if the market falls 30% even your ‘safe’ index funds will fall 30%. Your ‘active’ mutual fund may not even recover the 30% in a hurry! So much for risk. Telling the clients about risk is heard by the client as:  “wefxxdt wefinf erffttfd lokojngg sllrfub ldkfrdd”. Its the same thing. And this is perfectly what SEBI has done. I cannot blame the common man for not visiting the SEBI website – how will he know where the info is hidden? So he has to go there, search, read, and use. Gimme a break. Its not gonna happen.

Most of the investors I deal with are smart. They are doctors. Dentists. Brain surgeons, PhDs, Chartered accountants, MBAs, – none of them is stupid. They are just plain bored and super bored with finance. There is just too much stimuli outside from various places that they do not have the mental and physical strength to ‘think’ about finance – IMMATERIAL of the fact that their whole life is at stake. It is just too complicated. This is the ONLY reason they succumb to Relationship managers – young boys and girls who tell them “hey, Presto with the wave of a wand we will take care of all your money needs”. It works.

Disclosure does not help – even in an MBA class – the students just did not understand the prospectus and NONE, repeat none in a class of 200 (Mba finance) could pick a good fund from a lemon – based on disclosure. Oops. Obfuscation again.

Disclosure has to be made more interactive. Sebi has a training arm in NISM. Nism should be mandated to create disclosure games, seminars, etc…and see that the data is more meaningful and reaches the investor in an usable form.

I am cynical about this happening in my life time. Long live investing obfuscation and high fees.

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