As a financial analyst, Franklin Templeton posted My status about it during my time. Crash of Franklin Templeton. This is material news, so I posted this on my Whatsapp status. One of my friends asked me whether she was supposed to be scared or not. She is an investor in one of the big Mutual Fund. That time I realized that Mutual Funds are missold, at least in India. Not many mutual fund investors know what is to be done in such cases as one who knows mutual funds. So I must make some aware. That is why I am writing this post.
First, Mutual funds are not the kind they are marketed to be. There is always a need to watch all such news closely. What I am watching is in India, Mutual Funds are sold as SIP. I am not against mutual funds. They are a great way of saving, but like all other financial assets, they need basic knowledge about them. When you don’t have it, you don’t know the difference between SIP and mutual funds.
So let’s see the answer to the question, where I started.
NO. Mutual funds are not “buy and forget.” Nothing is BUY and FORGET. It is your money which is supposed to keep watch on. Even before you are supposed to start investing, you need to see many things. There is a fact sheet for every mutual fund scheme. Many people are just thinking of it as junk paper. No. It is imperative. It gives you information about the strategy of the fund. It gives you the objective of the mutual fund. It gives you the name of the AMC of a mutual fund.
Suppose you want to learn about them. There are many things to know. In the heading, I understood that it is a scheme that makes a portfolio from 200 shares with the highest market capitalization. So it gives me an idea of what to expect from it. It also gave me information that it is an open-ended scheme. So I know I can sell and buy it anytime, but AMC and not the market will decide the price.
Many fact sheets also gave information about Beta, Sharp ratio, modified duration, standard deviation, tracking error, etc., which are difficult for many financial advisors to tell their clients. So I am not expecting that every investor can understand it. But you can keep a watch on the expense ratio. So that is an important point.
The most important point is it tells about the performance of mutual funds against indices.
But the subject of this blog post is not to talk about the fact sheets. I am going to write about them in the next post. After that, I am going to write about the more enormous risks.
What can you expect when the whole global market is going down? Your portfolio is supposed to be down, and it is supposed to show it. Not showing it correctly is wrong. Your mutual fund manager changing is one big event for your investment. If you are invested in open-ended mutual funds, you can sell. But if you are in Close-ended mutual funds, you cant do anything. Unfortunately, they are marketed as the best way to invest. Unfortunately, it is wrong.
The little more significant risk is when the whole mutual fund house decides to sell its business. What can you do then? What if your insurance company wants to sell its business? Forget the insurance business. What if you are keeping your bank as a foreign bank subsidiary? In the case of banks and Insurance, Mutual funds are different. They are regulated, but the risk is other than banks and Insurance.
Even when you check the factsheet, there are some things you can’t predict, like Satyam. It showed why there is no increased interest rate if there is an increase in bank balance or deposits. IL&FS is another example where the problem is visible, but to what limit? It was impossible to understand that one of their subsidiaries was not having any capital. I am mentioning it because many mutual funds were invested in the bonds by assuming it is a pseudo-government company.
So. No. Mutual funds are not BUY and FORGET. So it would be best if you kept watching them.
