Mutual Funds SAHI HAI — Really ! — Part 1 | by MC Kumar

4 min readJul 13, 2019

Mutual Funds SAHI HAI — Really ! — Part 1

Some of my friends do request help on identifying good stocks or Mutual Funds. Most of the times my first question to them is, “Do you have any experience in investing in stocks or even mutual funds.” Bulk of the time the answer used to be either NO or that they have invested in Reliance MF or Bajaj Allianz or ICICI long time back. But many people would have actually invested in Insurance Companies viz., ULIPs. Usually their experience (with ULIP) used to be bad. They are confused between Insurance and Mutual Fund. They are as different as Chalk and Cheese.

One reason for ULIP returns being lower is due to mis-selling. Thankfully IRDA has come out with stringent guidelines to control this bad phenomena. ULIPs usually charge a chunky sum as commissions during the first few years. Only the balance is used to buy stocks and for Insurance Protection.

Whereas in the case of Mutual Funds 100% of the Money invested is used to buy the stocks.

As time passes, they hear postive stories from their friends and media about high returns from Mutual Funds. Having digested the original loss, with increased saving many pickup the thread again and would like to make a fresh beginning. In this article I shall try my best to help these investors with my thoughts and advice.

Constant Media Bombardment on MFs & SIPs

Most of the individuals are enamored by the constant bombardment of advertisements in the Media. A typical ad copy is as in the picture. What does it say ?

A Plan for every goal
Long Term, Short Term
You can Start a SIP with even ₹500/- per month

The ads and the copy are every enticing for the average individual. They feel that it is a RISK free Investment Scheme. Some may be cynical and some question why the returns are not constant like a Bank FD. But in my view the ad is misleading for a novice investor.

Though the ad series by AMFI (Association of Mutual Funds of India) “ MUTUAL FUND SAHI HAI” complimented by the campaign by many Business News Channels (SIP day etc.,) an awareness and Interest has been created on the benefits of Mutual Funds, but sadly the real education was found wanting. Most of the AMC Companies were more focused on becoming the №1 Fund house rather than being Customer Focused.

SIP & the subsequent Mis-selling of ULIPs as SIP

Long back in 2016 (July — November) I had written about Mutual Funds in Market Sense. The articles primarily were more focused on the features and types of Mutual Funds. One such article was on the Principle of Rupee Cost Averaging. SIP (Systematic Investment Plan) is basically a product based on this principle. When I first started investing there were no SIPs not Private Mutual Funds. SIP as a concept was popularized by companies such as HDFC MF, Reliance etc., They started selling SIP as an alternative to Bank RD. From the period later 1995–2000s onwards Markets had a good run and SIPs gave fabulous returns to investors. Private Insurance Companies entered with the fray with ULIPs and spoiled the party with their aggressive sales team. They sold Insurance as an Investment Product. This created a confusion and bad name for both the Insurance & MF Industry. The reason being both the AMC & Insurance Companies sharing a similar / same Brand Name. (Reliance, HDFC, ICICI, Birla Sun life etc.,)

Real Time Returns from MF — Case Study

Let me through this article share a real example of returns from Mutual Funds. An Individual who may have Invested (Not SIP) in HDFC Tax Saver (ELSS Fund) when it was launched (in 1996) would be a very happy person in 2019. Latest NAV of the FUND is ₹ 528 for the Growth Option and ₹54 for the Dividend Option.

The returns since inception (CAGR) has been 18.74% per annum. The money has grown over 52 times (Growth Option) in less than 25 years. The caveat here is that, the returns have been extremely volatile at times and had even under performed the Benchmark Index and even peers at times.