Do I really Know about Mutual funds -MF

Recently I came across one good blog on aspects of investments and risks. After reading his posts about MF, MF charges and the returns they offer, I was quite surprise.

This blog have presented quite good explanation, with example like,
when a fund comes into the market, it comes through NFO or New Fund Offer (equivalent to IPO for stocks). People subscribe to it by investing their money. For any mediocre fund, it is not difficult to collect around 800 crore rupees from the market. Established fund house like HSBC managed to gather as high as 1700 Crore Rs. for their single fund in 2003. The mutual fund manager takes a percentage of this collected money as his commission to manage the fund. It usually lies in the range of 1.5% to 3%. Now, for a very mediocre fund that collects 800 Crores from the market, the fund manager at a rate of 2% takes home a whooping 800 *2% = 16 Crore Rs every year! The remaining amount of commission collected in the form of “Entry/Exit Loads” is used to pay to the agents and for advertisement and promotion of the fund. In essence, everything comes from your pocket. If you see a full page ad in newspaper for a Mutual fund you’ve invested in, it is you who has paid for it.

One of the major benefits of mutual funds is diversification which eliminates the risk of putting all the eggs in one basket. Asset Allocation is also linked to the same concept of diversification, additionally it takes into consideration the percentage money allocated to different stocks in the portfolio. Even a small size mutual fund will have a MINIMUM of 60 stocks in its portfolio at any given point of time.

absolutely no one can guarantee anything in the markets. Hundreds of factors play role in the valuation of the stocks. Predicting them is a dangerous and highly inaccurate error-prone task. If you believe that you are doing the right selection of stocks at your level, the fund managers at least have some advantage over your inexperience and ignorance. They have much more money than you to play around with. If you “Invest for LONG TERM”, then every single fund also advises individuals to invest for long term, & the mutual funds carry on for long term. And still the fund managers fail, without guaranteeing anything. How can we, INDIVIDUALS, be so sure of making sure shot profits?