April 24, 2018

Mutual Fund Investors and blind Fund Managers following

Are you Mutual Fund Investor? Are you following Fund Managers cautiously along with the funds they manage? Are you switch the funds whenever there is a change in Fund Manager? Read these facts about Fund Managers before you act on your investments.

Fund Managers

Let us understand few untold or unshared stories about Fund Managers.

# They need new theme and stories to accumulate AUM

Yes, to be in the market they have to float new stories and new themes. This way they attract new investors. With boring only 5-10 funds how can they accumulate the AUM? How can they sustain in such competitive business?

Therefore, once in a while they come up with the theme or stories to attract and float the new fund offer (NFO). Advisers or middlemen brainwashed with lucrative NFO commission. Finally, scapegoats will be the investors.

Hence, whether it is debt or equity, stick to your basics and never heed to noise created by these fund managers.

# Equities will work in the long run

Yes, definitely and none have the second view on that. However, to sustain in long run as an investor, it needs a tremendous behavior training and mind control.

Sadly your fund manager will not teach you such lessons. Also, they do not define what is the meaning of the long term. Hence, for few investors, it may be 3-4 months, 3-4 years or 10-15 years.

To be a long-term investor, you need the tremendous commitment of not withdrawing money during fall in the market or when you urgently in need of money.

To be a successful long-term investor, you need the money, which you will not touch for LONG TERM. Have patience, understanding which part of compounding formula only under your control.

# Have you heard Fund Managers confession?

Have you heard somewhere that Fund Manager came up and confessed his wrong theme selection, wrong stock selection, wrong entry or understanding the market wrongly?

In my view, they never do that. They have every reason ready to defend of what they did (even if it is wrong). They are also human beings. Doing errors is human nature. What if we assume that during role as our fund managers they never did any mistake? Is it believable?

He also has to undergo the same behavior finance acts like we all the investors. Hence, he might also did some mistakes in managing our money or may be biased towards one sector or stock. However, he never confesses that to the outer world.

# Do they suggest you to exit from equity?

Have you ever heard from Fund Managers suggesting you that you must exit from equity NOW? Exit may be due to your nearing of financial goal or high market valuation.

They never say you exit. However, they defend at each level the growth story of India whether the market PE is at 10 or 100 level. Because at the end they need AUM to run their show. How can they themselves suggest you to exit and reduce the AUM?

# They predict always a POSITIVE story

No matter whether your goal is 2-3-5-10 years, for them it is always a positive equity story and forces you to invest. They never confess that their macro or microeconomic views MAY be wrong. Instead, they talk with confident as if everything is happening as per their term.

Sadly it does not happen in this way. Including the Fund Managers, we all humans. While expecting future scenarios, it may or may not happen. However, they act like GODs who knows everything in advance.

# They defend the expense ratio

Today morning I was reading an article. In that article, they compared the Liquid Funds returns with other Debt Fund types. It was shown that Liquid Funds with less than around 0.2% expenses, generated around same or more return than the other types debt funds during the last period of 1 Yr, 5 Yrs and 10 yrs.

In such a scenario, whether your fund manager will come forward and suggest you to stick to liquid funds only rather than other types of funds? No..Because there may be different fund managers for Liquid Funds to other funds. Hence, how can another debt fund manager suggest you to stick to Liquid Fund managed by some other fund manager of same AMC? At the end they fighting for their supremacy of accumulating high AUM right?

Instead, they defend high expense ratio stating they will generate some alpha. However, results may be different. If that was the case, then Dynamic Bond Funds might be an all-time success story in Mutual Funds industry and why they need a different variety of funds?

These are the few bitter truths which you must digest before investing in Mutual Funds or start following Fund Managers like their fans. Stick to your basics of investments. Mutual Fund Companies, Fund Managers and Advisers need money from you to run their show. Hence, they floated these many 1000+ funds. If they are so caring towards your need, then they might have satisfied with 5-10 funds in each Mutual Fund Companies.

I am not here to give a complete negative image of Fund Managers. However, cautioning few investors who BLINDLY follow Fund Managers rather than chasing their financial goals and expected returns.

63 Comments

  1. Respected sir,
    My mutual fund Portfolio is
    Reliance Small Cap Fund 1000
    Tata Equity P/E fund 1000 (I will increase another 500)
    SBI Blue Chip Fund 500 (I will increase another 500 )
    Kotak Balance Advantage fund 1000
    ABSL 96 Tax Saver 1000( want to continue up to 8 year then go for SWP)

    I am cleared expect SBI Blue chip fund which is one of good large cap fund not best based on its benchmark return and huge Asset AUM. I have started SBI Blue chip before 3 month only please give suggestion to stick with this fund witch is under perform of go for other large cap fund. If switch then Please suggest alternative fund..
    thanks..

    Reply
    • sir time horizon is 15 year

      Reply
    • Dear Jay,
      3 months of investment nothing for equity investors. You have to review the funds after a year or so.

      Reply
  2. Hi Basu,

    I hope you are doing well , can you please advise if one has two invest 1 lakh as lumsum on any of below fund for 10 years which one is the best to choose on basis of all factors as you described, I put them is order of returns generated is last 5 years

    L&T India Large Cap – Direct (G)
    Reliance Large Cap Fund – Direct (G)
    SBI Blue Chip Fund – Direct (G)
    ABSL Frontline Equity (G)
    ICICI Prudential Focused Bluechip Equity Fund – Direct (G)
    Franklin (I) Bluechip – Direct (G)

    Appreciate your choice among above

    Reply
    • Dear Shahnawaz,
      Where is your debt portfolio and on what basis you selected these many funds?

      Reply
      • I selected these fund by reading the some portals and your blogs and then compare the perfomance on Money Control, I can make 70 K in any one of the fund and 30 K in FD for 10 years horizon , please advise which one you choose among them

        Reply
        • Dear Shahnawaz,
          Then first read the above post properly. You will get my answer.

          Reply
          • Hi Basavaraj I read the above , I have some questions
            1. What is LONG TERM according to you or in Equity in order to plan accordingly, is it minimum10 years or …
            2. What I can do to compare different funds , like all above I shared are Large Cap Funds which I compared using website called Money Control and I found the best fund among them is “ICICI Prudential Focused Bluechip Equity Fund – Direct (G)” also this fund is your favourite in one of the blogs, but I am confused as I can see the fund “Reliance Large Cap Fund – Direct (G)” which looks similar and generates more return

            So please advise from where we should choose the fund , can we depend on any website or your blog or any other way

            Thanks

            Reply
            • Dear Shahnawaz,
              1) Minimum 5+ years and that also with proper asset allocation between debt and equity.
              2) You can stick with ICICI.

              Reply
              • Thanks

                Can you advise any website for fund comparisons or review or any othere blogs apart from yours , to be used in future cases

                Reply
                • Dear Shahnawaz,
                  What comparison you are looking for (I mean data)?

                  Reply
                  • Let us take example , I have two small funds now how can I compare which is better between below two for investment , time can be 5+years

                    1. Franklin India Smaller Companies Direct-G
                    2. Reliance Small Cap – Direct (G)

                    Reply
                    • Dear Shahnawaz,
                      Refer my post related to mutual funds to understand choosing the funds.

  3. Last year my gain was 50000 from equity mutual funds and due to market correction my profit was reduced to 20k and this year no return yet..Also I could see that the funds I invested are not among past 1year highest annualised reurns.So every 1 year I am planning to make changes by redeeming existing funds and invest lumpsum into the best performing mutual funds that financial year since after SEBI recategorization some funds are not performing well..though I know we need to wait for minimum 5 years for equity funds…but my returns are reducing since unable to find equity large and midcap funds giving consistent returns.
    So please tell me if I could earn compounded returns plus will there be no difference in returns of funds if I switch funds every 1year (to top performing that year) in comparison with consistent mutual fund returns

    Reply
    • Dear Srikanth,
      Chasing BEST FUNDS each year will be like neither you are here nor there. Ups and downs are part and parcel of equity. If you can’t digest, then stay away. Also, never compare the fund with it’s peers rather than check the performance with benchmark and have some realistic expectation.

      Reply
      • How to check the performance by benchmark

        Reply
        • Dear Srikanth,
          Along with the fund performance, benchmark returns are also given. Just check it.

          Reply
      • Hi Basavaraj,

        Thanks , but can you please ping me the links where benchmark returns are mentioned as I am unable to find so..

        Reply
        • Dear Srikanth,
          In each report of fund houses (or with portals like Valueresearch, Moneycontrol or Morningstar), you will find benchmark return against the fund’s return. Please cross check.

          Reply
  4. Is DSPBR Micro cap fund losing its sheen due to BR exiting? Fund has been a worst performer in its segment for quite sometime now. Also, its expense ratio is 2.03% for direct plan, which is significantly higher than franklin india smaller companies fund, which is 1.29%.

    Is it worth starting fresh SIP in franklin fund instead of DSP, and also should I switch from DSP to Franklin for existing units I am holding for Micro cap fund?

    Reply
    • Dear Dhaval,
      Don’t judge a fund with mere few quarters of underperformance. ” should I switch from DSP to Franklin for existing units I am holding for Microcap fund?”-YES YOU CAN DO SO.

      Reply
  5. I have 20L of money to invest for 20Y horizon. Which fund should I invest for moderate risk and generating retirement corpus? Kindly also advise if I go via stp from some fund or invest lump sum? If STP, please advice dilution duration as well…

    Reply
      • When/if you are starting fee only advice?

        Thanks for your prompt revert btw.

        Your post suggests to invest systematically through out goal duration. I agree with that, and I am already doing it. However, this 20L amount was accumulated towards another goal of down payment for a flat. However, there is uncertainty on buying flat, hence I am thinking of investing this money for retirement goal and divert as much amount towards goal of flat down payment from future cash flows of retirement savings goal. Or do you suggest to save this amount in liquid fund for now? Liquid funds STCG makes it very ugly deal to invest sizable money of my portfolio in that instrument. At the same time, there is a risk of buying equity funds at very higher valuation if I divert this 20L in equity funds in one shot….

        Reply
        • Dear Dhaval,
          I already applied for SEBI RIA. May within few days I may get the approval and then I will start fee-only planning services. Regarding your accumulated corpus, first decide yourself where you want to divert (retirement or downpayment), then accordingly choose the product.

          Reply
      • In your above post, you have set returns expectations of 12 pct from equity funds. What real inflation are you considering? Just curious to know what should be the real returns on portfolio discarding inflation.

        Would real returns automatically adjust based on portfolio allocation even if inflation fluctuate?

        Reply
        • Dear Dhaval,
          I usually consider around 7% to 8% inflation. Based on that you may calculate the real returns of each asset class. Real return is the calculation you do but portfolio will not adjust automatically and gives you returns.

          Reply
  6. Dear Basuji, I have 1,60,000 rs. I will need this amount after 5 yes. Is it OK to invest this amount in good debt or liquid fund and after one year make SIP of rs. 2000 monthly in large cap equiy of fund?

    Reply
    • Dear Pratap,
      If your goal is more than 5 years, then stick to around 80% to 70% in Liquid Fund and rest % in single large cap fund.

      Reply
  7. Actully I am looking to Invest in Mutual Funds.
    Guid me please If you can..

    Reply
  8. Hi, I am investing 5000 per month in EACH of these four funds. What do you think of them? Thank you.

    1. Reliance Regular Savings Growth Equity – Now – Reliance Value Fund
    2. DSP Blackrock Top 100
    3. Birla Sun Life Front Line Equity
    4. SBI bluechip fund growth direct fund

    Reply
      • I bought them 9 years back and now want to understand if they are fine as my goal is to have 25 lakh in 10 years. Please help na sir.

        Reply
          • Ya Sir. From today another 10 yrs goal to gain 25 lakh. As said 9 years back I invested in

            1. Reliance Regular Savings Growth Equity – Now – Reliance Value Fund
            2. DSP Blackrock Top 100
            3. Birla Sun Life Front Line Equity
            4. SBI bluechip fund growth direct fund

            Can you please tell me how these funds are and should I continue with them or change any one of them?

            What about “Reliance Regular Savings Growth Equity ” fund. What is your advice. thank you so so much.

            Reply
            • Dear Pavithra,
              First do the asset allocation between debt and equity and it should be around 40:60. For debt, use ultra short term debt funds. For equity, retain SBI Blucechip and rest large caps not required (Birla and DSPBR). Instead of Reliance, I suggest HDFC Midcap Opp Fund.

              Reply
  9. Hi Basu ji…

    What you say about PPFAS Liquid Fund NFO.

    For liq fund Lumpsum is Best or Sip.

    What should be optimum hold period for liq funds best results.

    Reply
      • Since it’s a Liquid Fund. and can get at Rs 10.
        And No Exit Load.
        To Park Surplus Fund Safely and Easy Liquidity.

        Reply
          • Both coz initially in NFO period at very low NAV units gets alloted and if fund performance is well then NAV rises so ultimate good profits. What u say.

            Reply
            • Dear AAW,
              What is the difference between the A FUND whose NAV is Rs.10 and another B FUND whose NAV is Rs.1,000 and if both performed at 10%, then how your investment in low NAV fund is different than the high NAV fund? Low NAV is the gimmick sold by AMCs and advisers to garner more AUM.

              Reply
              • Sir , I know u r expert. But now what’s Ur final verdict whether to subscribe for this liq fund NFO from PPFAS or no. And, initially unit rate NAV is Rs 1000/- and not Rs 10/-.
                And in general for liq funds lumpsum or Sip which is best.

                Reply
                • Dear AAW,
                  Go with the fund which has the good track record. We don’t know how such new funds perform. Hence, don’t do trial and error with your money.

                  Reply
  10. Thank you for sharing such valuable information about Fund Managers truth which is untold to us.This is going to help me a lot.Hope you will keep on posting to update us.

    Reply
  11. nice article

    Reply
  12. Basu,
    Mutual fund AMCs have started floating IPOs, so now the profits have become an important cog. This needs to be achieved after they pay a fortune to fund managers like Prashant Jain. So obviously when this business picks up like it has over the past 5 years, they will make sure they get the benefits in a big way. It will affect investors. Smaller AMCs will be better bets.

    Reply
    • Dear Pradeep,
      Well pointed which I too missed to mention. Yes, now their concentration is profitability to satisfy the shareholders rather than investors.

      Reply
  13. excellent article. The perils of blindly trusting a human element in investing.
    Why not index funds/etfs. The alpha in large caps are reducing and in some cases have disappeared. Beating the market itself is questionable in long term with introduction of TRI and fund categorization. Some investors who see this are quietly moving their money out from the active funds to index funds and etfs. Why let fund managers pocket 1-3% when the scheme itself is uncertain about beating the index. Check the latest SPIVA report. If the goal horizon is 15+ years, trusting a fund manager will be the biggest risk one can take. In that case Index would be the best choice.
    Please enlighten the readers on the index funds and etfs which are slowly growing popular.

    Reply
    • Dear Sabu,
      Thanks for sharing your views. Surely I will soon write posts on Index and ETF Funds related.

      Reply
      • Thanks Basavaraj.
        Would look forward to the article on Index fund.

        Reply
  14. Hi

    Nice Article.

    Thanks for great information,

    its very useful for investor

    Reply
  15. Hi Basu, Great Article.

    Reply
  16. Superb articles sir!All d best!

    Reply
  17. Superb articles sir!

    Reply
  18. Robert Kiyosaki from rich dad poor dad fame, advises against putting money in MF for these same reasons. Why would the MF manager be interested in making money for investors, they are there to make money for themselves from the money which investors pool in. When there is not much invention, discovery or innovation happening in any industry in the country, i wonder where does this India growth story come from.

    Reply
    • Rakesh-Each one of us work for our livelihood. There is nothing wrong that they charge fee for managing our money. But here my point is few of fund managers conflict of interest and also the mad BLIND following by few investors.

      Reply

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