Impact 
Iconic personalities influence more Indians than freedom fighters do. Actors are not just actors; they are “kings and queens”, ruling people’s aspirations. Cricketers are not just players; they are “ambassadors”. This debate, “whether or not all these celebrities (or deities as treated by their fans) should be held responsible for their brand endorsements”, revolves around accountability. After all, many Indians do not buy the products for their physical attributes or aesthetic appeals, the person endorsing the product equally matters to them; in some cases, it matters more than anything else. Often, companies involve celebrities in their advertisement campaigns to state tall claims about a product that is unlikely to be satisfied. A country where liquor and cigarette are not actively marketed primarily due to the potential health hazards to consumers. Here, the message to companies is clear. Warning messages/graphics keep stroking potential consumers. Undoubtedly, advertisement codes matter a lot.
It seems that mutual fund houses do not feel so. Recently, they met the officials at the Securities and Exchange Board of India (SEBI) to discuss a fresh proposal on easing advertisement norms. In March 2012, SEBI had relaxed the ad code for the mutual fund industry. PersonalFN had welcomed the move. This time, PersonalFN has decided to choose a different side. We believe the proposed changes in the advertisement code may do more harm than good to the investors and industry.
As the discussions continue soon the advertisements and other communications of mutual funds may stop providing you the information about people managing your money; the fund advertised or the past performance. Moreover, you may not even see the “standard disclaimer”, warning you against the “market risks” mutual fund expose you to. This is thanks to the belief that getting rid of such details will help change the mind of investors and spread positive awareness about mutual fund schemes.
It is believed that the proposal goes beyond this, to talk about changing the official risk statements, formats of commercials and norms governing promotion campaigns. The industry believes the disclaimer that mutual funds are subject to market risks puts off potential investors.
PersonalFN is of the view that the industry needs to look beyond merely promoting mutual funds. Educating investors is one way; the other way is training distributors not only on advisory skills but also on ethics and morals. Let’s not forget the tight regulations were self-inflicted. Many first-time investors burnt their fingers in capital markets due to rampant mis-selling and the flood of New Fund Offers (NFOs) during market euphoria.
The advertisement code might be relaxed, and mutual fund houses may find it more feasible to reach to people at lower cost. However, more than appeal, education and awareness can help resolve the problem of low market penetration.
Releasing disclaimers and norms requiring mutual funds to exhibit about the past performance is just like asking the HR department to select a candidate without presenting a resume. Investors can only hope that SEBI stays true to their moral code.
Impact
The tax saving season has just ended. Many of you might have rushed at the last minute to invest in either Equity Linked Mutual Fund Scheme (ELSS) or insurance plans having an investment component. As PersonalFN connects with investors every day, we learn about newer investors’ traits, however, few of them are common across the board.
Here are THREE
First and foremost, the performance of two ELSS schemes can be 180 degrees contrasting. The best performing scheme in the ELSS category (which PersonalFN had also recommended to its subscribers) has outperformed the worst performing scheme by a compounded annualized rate of 23% and 15% on 3-Year and 5-Year timeframes respectively. Imagine how much you could lose if you invest blindly in any ELSS fund.
The top performing fund has generated CAGR returns of 27.6% and 18.8% over the 3-Year and 5-Year period, while the worst performing one yielded paltry CAGR returns of 4.7% and 3.3%.
Preferring NFOs in ELSS is equally harmful, especially if the fund does not click, you have to stay with it for at least three years. It is inexplicable why a fund house needs more than one fund in the ELSS category. Having two schemes minimum is in vogue with fund houses, a few have as high as four. Those investing at the last minute tend to invest in schemes which are better marketed and more talked about. Assessing risk and identifying goals should be the starting point of any investment decision. Tax incentives should be treated as the added benefit.
PersonalFN gives three simple remedies to avoid being trapped in the clutter of schemes on offer.
- Don’t wait till the end of a financial year, start investing from the first month of every financial year
- Assess available scheme options on various parameters and invest at regular intervals
- Lastly, after the end of the 3-year expiry period, evaluate the performance of the scheme before reinvesting the proceeds, else opt to withdraw the money.
Impact
The zigzag movement of the Indian Rupee value could become a rare sight soon. The RBI has been working on a strategy to straighten out currency volatility. More than the appreciation or depreciation, the Rupee volatility affects investors, exporters, and importers. Frequent fluctuations of high magnitude in exchange rates often create panic or euphoria giving rise to unwarranted speculation on the direction of the currency’s movement. This speculation often leads to excessive volatility, worsening the matter. Lower inflation and active interventions of RBI in the currency markets have made it possible for India to ride out a difficult phase of appreciating US$. The RBI wants to bring the volatility in INR down further.
The RBI has identified powerful tools to achieve the Rupee stability—Inflation Targeting and Liquidity Management. Let’s see what Dr. Raghuram Rajan, the RBI Governor, said about the strategy to achieve exchange rate stability. Addressing the Media, he said, “Our aim in the macro stabilisation is to make the exchange rate less and less an issue that investors have to worry about.” He further added that “If we move towards our inflation target of around four per cent, then the past years where you had extreme volatility in the rupee because rupee inflation in India was much higher than the world, will become a thing of the past.”
In simple words, the Indian Rupee maintains its competence only when domestic inflation is in line with the global trend. If the national economy has an excessively higher inflation as compared to that in a country from where the foreign capital flows into India, the Rupee is likely to depreciate more, and the reverse is also true. Currency appreciation or depreciation, in this case, reflects the difference in the real purchasing power of the traded currencies. This essentially tells us that, currency depreciation in nominal terms is not always bad, if the domestic inflation is low. In such a case depreciation in the value of the currency may make exports more competent. Over last two financial years, India’s currency has moved in a range of 18.0%.
To ready more about this story and Personal FN’s views over it, please click here.
Impact
At PersonalFN, we won’t stop criticising those who try to take undue advantage of gullible uninformed investors. Here’s one more article exposing the industry’s malpractices.
The Securities and Exchange Board of India (SEBI) has been nudging mutual funds to merge similar schemes. The regulator also wants them to cut down the number of NFOs they introduce in the market. It has been observed that investors get confused because of a vast number of similar offerings. What’s more is that the commission-driven approach of distributors and lack of awareness among investors results in rampant mis-selling. Distributors often ‘pitch’ NFOs which are usually offered for Rs 10, as ‘cheaper’ alternatives to existing schemes whose Net Asset Value (NAV) is above Rs 10. Investors get trapped in the plot and ignore the risks of investing in NFOs.
The irony is that mutual fund houses have been conveniently ignoring the message of SEBI, despite it being loud and clear. Do you know something? In 2016, mutual fund houses have launched 30 NFOs so far. Although the new offerings have been from across categories, mutual fund houses targeted three classes in particular—Equity, Fixed Maturity Plans (FMPs), and retirement.
To ready more about this story and Personal FN’s views over it, please click here.
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