What to expect when investing in MFs

Expense Account, Mint

What do you expect your mutual fund to do? It is worth asking and answering this question as we carry out Mint Money’s biannual exercise of examining Mint50—the portfolio of investment-worthy funds that the Mint Money team curates. A quick word on why we do this. Indian households have a high savings rate but most of this lies in inflation-unfriendly deposits and traditional insurance plans. A gradual move up the risk scale would benefit the investors but that has not happened and fewer than 15% of Indians expose their money to equity, either directly or through funds. Similar looking products promising to do the same thing—long-term corpus building that come from three different regulators—seem to be confusing investors.

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Do own-brand products leave you worse off?

Expense Account, Mint

In the market for a TV, I checked out all the vendors nearby. In the Sony and Samsung showrooms I got the Sony and Samsung TVs. In Croma, I got a variety of brands. On one TV it said Croma. That was the in-house brand which was cheaper than the other branded TVs. I find the same practice when I go to Shoppers Stop or Big Bazaar—own-brand retail is usually cheaper and is labelled clearly on the package. I know that it is cheaper because a quick check on the price tag tells me that. I can look at the picture quality, the specs of the TV or the style and cut of the clothes to compare with the other brands in the store. Can we say the same about buying financial products? Do consumers of financial products fully understand the impact of buying an own-brand product or do they allow themselves to be “advised” by their seller towards the product they end up buying?

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In defence of trail commissions

Expense Account, Mint

The Securities and Exchange Board of India (Sebi) has taken a welcome step to bring in a set of adviser regulations. It has released a concept paper on the regulation of investment advisers. India needs a new set of regulations to bring order to a marketplace that moves money between households and fund managers. Investors stay in inflation-unfriendly deposits and negative-real-return endowment insurance policies because they are unable to trust the intermediary who talks about putting their money in markets through mutual funds and pension products. The unit-linked insurance plan (Ulip) fiasco where investors were looted systematically by insurance companies, banks and distributors has not helped foster trust. The Ulip debacle was a case of misaligned incentives and for trust to be built we need to align the incentives of the investor with that of the intermediary, keeping in mind the fact that the bulk of the market finds it difficult to pay for services. There is still time before we come to a stage where there is a well-recognized designation such as MBBS or LLB that qualifies the person giving financial health advice to charge for services as an accepted part of the practice.

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What to do when doomsayers predict a rough global 2012

Expense Account, Mint

If 2012 is the year in which the world will end, 2011 was the year in which the world prepared to end. We heard that the euro zone break up may take Europe back to the fall of the Roman empire. That the sins of bowing to Wall Street will make the US implode. That the Chinese ghost cities will haunt the world. That the loonies will take over from pro-democracy Arab Spring leaders. And India will be stalling rather than rising. It’s different this time, we heard. At no other time have odds looked so stacked against the world. It’s different this time.

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