Is Mutual Fund Industry cheating

[riser3]

Sebi chief slammed the MF industry

Giving returns lower than individual investors:

“If you (mutual funds) are producing better returns than what an average investor investing himself in the stock market gets, then why is it that you are unable to convince investors that you are giving them better returns,” said Mr Bhave, at a mutual fund summit organised by the Confederation of Indian Industry (CII). “I mean, are investors so dumb as not to understand that they are getting better returns here (mutual funds) and yet would invest somewhere they would get lesser returns,” he said.

Sales of equity schemes of mutual funds have been hit, after Sebi banned mutual funds from charging investors to pay fees to distributors. Mr Bhave said that mutual funds needed to look at how investors benefit from investing in their products, rather than create an incentive structure that suits them.

Short-Term Focus

“Somehow the focus goes to short-term incentives and that ultimately results in a great loss for investors. And finally, when investors lose money, the whole industry also comes tumbling down. I think, this lesson needs to be internalised by all of us,” he said.


“You are becoming a shock absorber because you are taking short-term money ... now who asked you to take short-term money ... because you see that the neighbour (rival fund house) is taking short-term money and his AUM has gone up, so I need to compete,”

On large number of schemes with little difference
“Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me,” Mr Bhave said. “If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” he said.

I think that MF's are cheating investors. We see that all schemes are handled by same fund manager. So what he is doing is when he is making 50% profit and 50% losses(not exact in percentages) he is showing that in his star schemes to keep up their returns while their poorer cousins remain as it is. Overall Gain percentage of the Fund house with respect to equity must be a parameter that funds should provide other wise this skin hiding will continue in my personal opinion. After all this these people are ore interested in showing off their faces before TV screens rather than doing some quality research.

If some one can interested in Mutual Funds can unearth that overall fund house gain per year it would be appreciated.(another topic for Sucheta Dalal)

Well done Mr. Bhave but add some parameters so that Fund house performance is reviewed as a whole or introduce some returns based fee scheme. otherwise we are bound to see another desi version of American Recession

[nikrod]

Originally Posted by riser3

I think that MF's are cheating investors. We see that all schemes are handled by same fund manager. So what he is doing is when he is making 50% profit and 50% losses(not exact in percentages) he is showing that in his star schemes to keep up their returns while their poorer cousins remain as it is. Overall Gain percentage of the Fund house with respect to equity must be a parameter that funds should provide other wise this skin hiding will continue in my personal opinion. After all this these people are ore interested in showing off their faces before TV screens rather than doing some quality research.

That is not correct. A fund manager managing multiple funds cannot alter performance to make star funds better & poor funds poorer. The transctions of individual schemes are tracked by AMC's and are subject to usual audits.

The difference is different funds managed by same fund manager could be due to every funds mandate. Also in my openion the parameter suggested by you "Overall Gain percentage of the Fund house with respect to equity" would not be fair since all equity funds from same fund house have different objectives.

[ram3738]

Originally Posted by riser3

Sebi chief slammed the MF industry

Giving returns lower than individual investors:

“If you (mutual funds) are producing better returns than what an average investor investing himself in the stock market gets, then why is it that you are unable to convince investors that you are giving them better returns,” said Mr Bhave, at a mutual fund summit organised by the Confederation of Indian Industry (CII). “I mean, are investors so dumb as not to understand that they are getting better returns here (mutual funds) and yet would invest somewhere they would get lesser returns,” he said.

Sales of equity schemes of mutual funds have been hit, after Sebi banned mutual funds from charging investors to pay fees to distributors. Mr Bhave said that mutual funds needed to look at how investors benefit from investing in their products, rather than create an incentive structure that suits them.

Short-Term Focus

“Somehow the focus goes to short-term incentives and that ultimately results in a great loss for investors. And finally, when investors lose money, the whole industry also comes tumbling down. I think, this lesson needs to be internalised by all of us,” he said.


“You are becoming a shock absorber because you are taking short-term money ... now who asked you to take short-term money ... because you see that the neighbour (rival fund house) is taking short-term money and his AUM has gone up, so I need to compete,”

On large number of schemes with little difference
“Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me,” Mr Bhave said. “If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” he said.

I think that MF's are cheating investors. We see that all schemes are handled by same fund manager. So what he is doing is when he is making 50% profit and 50% losses(not exact in percentages) he is showing that in his star schemes to keep up their returns while their poorer cousins remain as it is. Overall Gain percentage of the Fund house with respect to equity must be a parameter that funds should provide other wise this skin hiding will continue in my personal opinion. After all this these people are ore interested in showing off their faces before TV screens rather than doing some quality research.

If some one can interested in Mutual Funds can unearth that overall fund house gain per year it would be appreciated.(another topic for Sucheta Dalal)

Well done Mr. Bhave but add some parameters so that Fund house performance is reviewed as a whole or introduce some returns based fee scheme. otherwise we are bound to see another desi version of American Recession

True.
Market risk is only for investor but not for fund house. They will earn whether market goes up or down.

It is said that MF or any financial product have aim to make profit for themselves and investor , in that order So first aim is to make money for themselves and if possible for investor. If somebody invest RS 100 for ten yeras. MF fund house will get > Rs 25 (definitely) and if possible investor will get Rs 70- 80 ( this is not definite) after tax.


If wise investor invest himself he will definitely beat any MF over long period

[jvblogger]

Most funds of same AUM are often similiar in nature, and therefore expected to perform similarly. An AUM company at the most can have 5-6 different categories. Quantum perhaps has minimum number of funds, around 6 funds, which also includes Gold and FoF.

MF companies are not transparent about their business and do lot of churning as stated by Mr. Bhave. However, I would not use the word 'cheating' as they are doing within purview of the laws, but definitely it is 'unhealthy' thing what they are doing.

[praveen taneja]

Bro it is nowadays not possible for broker to switch trades between two clients and u are blaming whole industry??????
when u want to compare a MF always keep in mind its aim working style and total fund it want to mobilise

[alroyraj]

Its true that some fund houses offer an excess of schemes . Remember when the entry load was removed for open ended funds, the MF industry went overboard to launch irrelevant close ended schemes to maximise revenues at the cost of the investor. There are no way anyone can defend this.
Even canara offers a few funds like Quantum. Very few MF companies maintain a trim portfolio. There is a noticeable shortage of good fund managers and the new entrants just throw money to attract the same limited talent from other houses.
Then schemes performing till then start falling.
And at the end you see there are some barely 5 max 10 tested and consistent fund managers.
That should be a concern for the investor.
And how do the fund houses address this the launch similar sub standard schemes with poor investment mandates that are sometimes too narrow where newer managers are soft landed.
Remember that the universe of stocks for investment are some 100 to 200 due to poor depth in the market, so in the end most funds end up having a large cap bias.
Few fund managers like Sanjay Sinha, Sunil Singhania, Prashant Jain,etc.

[drsambu123]

Originally Posted by jvblogger

Most funds of same AUM are often similiar in nature, and therefore expected to perform similarly. An AUM company at the most can have 5-6 different categories. Quantum perhaps has minimum number of funds, around 6 funds, which also includes Gold and FoF.

MF companies are not transparent about their business and do lot of churning as stated by Mr. Bhave. However, I would not use the word 'cheating' as they are doing within purview of the laws, but definitely it is 'unhealthy' thing what they are doing.

Quantum long term equity has low expense ratio...
Read further fron value research article
http://new.valueresearchonline.com/s....asp?str=14731