Mutual funds is a huge industry and though regulated strongly by SEBI, there are many in-built structural faults in a mutual fund that makes it a highly inefficient investment vehicle. Though it is a good choice if you neither understand the markets nor you have any time.
In mutual funds the fund manager is working with his hands tied.
Even the best of the fund managers cannot generate superior returns if they face constraints in taking decisions.
It is of utmost importance for investors to understand these issues which are mentioned below.
~2% of funds plus 10 – 20% profit sharing
Only Rs 6600 per year fixed (even lower priced options for small investors)
Cost p.a. for a portfolio of Rs 50 lakhs, and annual returns of 30%
Rs 2,50,000 (assuming 10% profit sharing)
Returns (more details below)
Average returns about same as index returns
~Double than market returns
Easy to invest
Superior returns with capital protection and positive absolute returns*
You lose money if market goes down
Money is not handled, you need to do transactions on your own
Several plus custom
Long term growth with capital protection
Stock holding period
Focus is on annual returns, to stay above the benchmark
Minimum 1 year, preferably 3-5 years, can be even longer in some cases
There are more than 2000 primary mutual fund schemes in India.
Primary schemes implies the main scheme for example ICICI Prudential Discovery Fund. The variants of this scheme as plans (for e.g. Dividend, Growth etc. options might also exist).
If all of them are taken into account there would be roughly 20k+ schemes.
And there are ~5600 listed companies. Almost half of them are junk or tiny companies not worth investing.
So - selecting a mutual fund scheme is as good as selecting a stock!
Additionally, while selecting a stock, you can analyze it in detail, but it is very difficult to analyze a mutual fund based on its holdings, because there may be anywhere from 20 to 60 stocks in a scheme. And if you wish to compare 10 schemes, you need to study hundreds of stocks!
A mutual fund has a serious limitation to invest according to its stated objective – if it is a technology fund, it will invest only in that area, it will completely miss out on other opportunities. There is no scheme that is open to every opportunity, all have fixed objectives and will limit themselves to that. The limitation may be in terms of sector, market cap, theme, geography, etc.
If a scheme has huge AUM, it will not be possible for it to invest in stocks of small market cap, and it may miss on several excellent growth opportunities.
Equity mutual funds under SEBI rules are required to keep at least 65% of their funds in equities all the time, even if the market is in recession. This is the key constraint equity mutual funds cannot protect your capital in severe downturns.
We do not face any of the constraints mentioned above.
Our returns since we started last year are roughly more than double of the Nifty returns.
Plus, we have the unique distinction of being 100% correct in all our market forecasts ever since we started doing it in 2014. No other entity has this record, and the mutual funds always mention that it is impossible to predict the markets and to overcome that you should stay invested for long term (even if that makes you lose 50 to 80% of your capital - as happened in 2008).
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