“Ship of fools, all aboard the ship of fools
We blindly follow all the rules
On the ship of fools, all aboard the ship of fools
In the depths of the deep blue sea
Well, I better not catch you laughing at me


Ship of fools, all aboard the ship of fools
We blindly follow all the rules
On the ship of fools, all aboard the ship of fools
Well, I'd sail around the sea making sure
Everyone thinks like me”

An allegorical song written by Robert Hunter and performed by the band Grateful Dead reminds us of Plato’s far-famed analogy of “ship of fools.” Plato believed when a ship of fools is on a voyage; a captain who knows the route and has good navigation skills is made jobless by fools who think he doesn’t know anything. Instead an incompetent first mate gets charge and the ship wanders deep seas.

...Fast forward to present day...

A ship of fools has been traced in Indian seas. However, what’s unclear is whether the fools aboard are mutual fund houses or mutual fund investors?

They (mutual fund houses) may have dozens of schemes under their product portfolio but their hunger for greater Assets under Management (AUM) is insatiable. What stops mutual fund houses from attracting money under existing and performing schemes? Only they know the answer.

But the matter of fact is their New Fund Offer (NFO) factory churns untiringly. This is why, when markets are up; they make believe markets will go further up and acquire money from investors through NFOs. The narrative quickly changes when the markets are down. For bearish phases, such as the one that currently prevails, the story is—markets have been corrected and now look attractive; so why not invest in NFOs that take advantage of existing market opportunities.

And that’s not all, come tax savings season and you’ll see new tax savings funds.

No matter how hungry you are, you don’t need 10 plates, do you? Similarly, it’s irrelevant how ambitious a fund house might be; it doesn’t need a dozen equity-oriented funds to grow. Unless, it admits the older funds have stopped being effective to manage assets.

One may wonder what a deadly combination many mutual fund houses make today—ambition to grow coupled with a proclivity for taking shortcuts.

Many mutual fund houses want more assets for longer duration without proving mettle. This is why they launch close-ended funds, in which investors can’t actively buy and sell units; unless they are listed on stock exchanges and there are ready buyers /sellers when one wants to buy/ sell. At present, there are five close ended schemes on offer.
 

What’s on offer?

Scheme Name	Category	Type	Open Date	Close Date
ICICI Pru India Recovery Fund-4(G)	Equity-Diversified	Close ended scheme	8-Feb-16	22-Feb-16
Birla SL Emerging Leaders Fund-7-Reg(G)	Equity-Diversified	Close ended scheme	5-Feb-16	19-Feb-16
UTI LT Adv Fund-III(G)	Equity-Equity Linked Savings Scheme	Equity-Equity Linked Savings Scheme	18-Dec-15	22-Mar-16
SBI LT Advantage Fund-III-Reg(G)	Equity-Equity Linked Savings Scheme	Equity-Equity Linked Savings Scheme	31-Dec-15	30-Mar-16
Sundaram Long Term Tax Advantage Series I	Equity-Equity Linked Savings Scheme	Close ended scheme	11-Mar-15	15-Mar-16

Data as on February 08,2016 (Source: ACE MF, AMFI, PersonalFN Research)

Well, speaking about the narrative, it’s not constant across fund houses. While one fund house sees more opportunity in largecaps as they trade at discounted valuations compared to midcaps. On the other hand, another fund house believes that after the recent correction, midcaps have become reasonably valued, so offers a product catering to the mid and small cap space.

Since mutual funds come out with NFOs one after the other, there’s enough reason to believe that investors may be mildly inclined.

The more you navigate the Indian Mutual fund seas, it may increasingly feel like a ship of fools, investors. No prizes for guessing who the captain of the ship is. Investors investing in equity diversified mutual funds share one common objective --- to grow wealth. Investors should stay with schemes having a proven track record. But, only sensible fellows can comprehend this, unlike fools.

PersonalFN has time and again discouraged investors from investing in close-ended equity funds and has also cautioned investors against investing in NFOs.

Unfortunately, mutual fund houses launching fewer or no NFOs, running their existing schemes efficiently and, probably, in the most earnest manner are being ignored.

“The four most dangerous words in investing: this time it’s different.”—Sir John Templeton

PersonalFN really hopes that investors will give a “different response” this time.


 

Add Comments