The Indian Mutual Fund Industry is in bad shape. Is it really in trouble? I would like to disagree. This is one opportunistic industry which has
always benefited from outsmarting investors by selling dreams instead of
genuine products. Here are some facts
The Association of the Indian Mutual Fund Industry has
released data last week that the top 250+ distributors of this Industry have
earned a total Rs 18600 million in the financial year 2011-2012 up from Rs 1770
million in the previous year. The increase
in profit has come despite the fund houses increasing their pay out commissions
by 5%.
This is not an industry which is in trouble. However, the MF industry is a cry baby and
has Godfathers in the Government who have a vested interest in this industry. Most Politicians route their illegal holdings
through Mauritius and this money enters the MF Industry via the Foreign
Institutional Investors route.
Readers of this blog are advised to look at expense ratios
of each fund they opt for. The MF industry
has just received a go ahead from its regulator to increase its charges by
0.25%. This is a net increase of 11%.
Stick to funds that charge minimum amounts as expense
ratio. Stay away from brokers who try to
sell you the funds. Be careful of every
IPO that the fund house brings in. A new
IPO is allowed an expense of 6% as its initial costs. These are nothing but the salary hikes that
they need to pay their fund managers. As an existing fund cannot charge in excess of
2.25% as expenses, the fund houses come out with IPOs to pay this money to
their expensive fund managers. The
period between 2003 and 2007 saw this string of IPOs that were just rubbish.
Remember, any fund charging anything in excess of 1% as
expenses, is expensive and you need no pay that kind of money for a mutual fund. Stay away. Stick to funds with lower expense ratio. If your broker is selling you this kind of
junk, don’t buy and close your account with him. You don’t need an expensive fund and neither
do you need a greedy broker.
Happy Investing!
© Nitesh Kotecha
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