Mutual fund investment experinces of most of the customers have been very bitter since last one year. Most of the schemes that outperformed traditional investment options, are giving negative returns since last one year. As an investor should one stop thinking about the money he invested & stick to the famous disclaimer ‘Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.’
Mutual fund companies or the regulator of the industry may expect so but it is very difficult practically; especially for a customer whose investment was his hard earned money, retirement fund or money saved & invested for kids’ education, daughter’s marriage. Though the intricacies of mutual fund industry appear to be complex, customer’s expectations are very basic- Return on Investment.
Contrary to meet this expectation suitably, the recent changes in the industry are an attempt to mould the investors’ expectations from “Returns” to “Beautification”. The Recategorization directive of SEBI has forced Mutual fund companies change the structure of their schemes, their names and also their returns. The victim of this move is the key constituent of this industry- the investor.
An investor who started investing last year after seeing very attractive double-digit returns of the funds is trapped now. Shall he withdraw his money to avoid further damage and move to safer categories like Fixed deposit or needs to wait for some more time. But how long? Those who withdrew their money at a loss will hardly be able to invest again so soon. The question is why the regulator was so keen on imposing such a decision so abruptly? If this can benefit the investor, what will be the nature of the benefit and can it compensate the loss one incurred by losing money?
Under the umbrella of the disclaimer- “Mutual Fund Investments are subject to market risk” the regulatory body must not take the advantage to impose any decision & force a customer risking his investment returns. The nature of such risk is certainly not the “Market Risk” may be “Regulatory Risk” or “Dictatorial Risk”. Then the disclaimer needs to be revised to “Mutual Fund Investments are subject to market risk & Regulatory risk. Read all scheme related documents carefully & probable regulatory changes to be taken” But what about the move that did wrong in the past. Who will rectify it?
Can an investor get back his return? Can someone who had to withdraw his money for some emergency during this phase, be compensated for the loss he incurred? It may be shocking but there are many large-cap schemes that can never give similar attractive returns they generated in the past. The reason is- Earlier mutual fund companies had the freedom to choose the stocks they felt right and could generate more returns in future. But now they are bound to choose only those stocks they have been restricted to. Indirectly, as per current rule, returns of the scheme are not important but the characteristics are.
If the characteristics of the scheme was so important, was this only way out to change abruptly? Why so urgency? Why an investor was not asked what he preferred – More returns or Characteristics. If the regulator knew this move will bring down the returns, why a customer was not informed properly about the impact of this decision. Where is the transparency? Or whether the concerned authorities never expected such downfall. In both the cases it was too abrupt to implement such a move. Now when it is implemented a few are trying to find good about this move. All because of the notion-SEBI ‘s decisions once implemented can never be revoked. Howsoever damaging it is. Investor also needs to prepare himself for this but with new disclaimer now.
Shreeman Narayan Singh