This is so funny – someone called me the other day to talk about the recent mutual fund regulatory changes. After discussing for some odd 10 mintues, I was startled to learn that the person had not even invested money into mutual funds, did not want to and believed in direct stock trading. He was simply trying to pick up a discussion on why these changes and how they would impact investors. I ended up writing this post post that call.
You must have either read or heard about these mutual fund changes done by regulator SEBI. While I covered the mutual fund regulatory changes of 2012 in an earlier article, Hemant Beniwal has an interesting infographic on the MF changes while Manish Chauhan has carried another article on this topic as well here.
So while we try to educate readers about all these changes, to what extent should you get worried about these ? Let us see.
How many of Indians invest in equity ?
First let us do some fact finding on some numbers.
Indian investors don’t put much of their money into equity, they still put their faith in fixed deposit and life insurance. In fact, I have been tweeting about these numbers of late on TheWealthWisher’s twitter profile.
45% of Indian household savings go into FD and 25% into insurance.
Only 8% of Indian households have invested in equities, as opposed to 42% in US & 14% in China.
So, these regulations effect only 8% of Indian households. That is with the assumption that all 8% invest via the route of mutual funds which I am sure isn’t the case. The question I am asking myself is whether I should concentrate on educating 8% of my investors and clients on the recent changes or try and get the other tribe who shun equities into the equity inclusion, regulatory changes or no changes !
I choose the latter. Its good for those 92% who believe in the slogan i-dont-want-to-invest-in-equities. Its also good for my business !
You see, most of the investors can jump high or low and shout hoarse on these changes being good or bad. But even the 8% who put their money into equities use the wrong approach. Many opt for the direct investing into stock market route which is an absolute no no for ordinary investors. In fact, direct investing is a blunder was amply demonstrated of late when a reputed brokerage firm advised domestic investors to buy a stock and on the very same day advised institutional ones to sell the same stock ! Such is the method of direct stock investing madness. Avoid.
Investors are better off concentrating on investing money
The question investors need to ask themselves is where should they concentrate their efforts on – keeping upto speed on these changes and worrying about how much they would now lose or gain or close their eyes and invest in the right way ?
I think the latter – regulatory changes will come and go. SEBI will make things cheaper and expensive. You can sit down and calculate what changes it will make to your financial plan and whether it is positive or bad. But at the end of the day, you still need to invest into mutual funds the right way. That is where your effort should be concentrated on. And this is what investors falter on, time and again.
So you could do extensive quantitative exercises to see how much you stand to lose and then run helter skelter but you still need to learn the art of simple investing. This is what investors need to spend their time on instead of being worried to death about the regulatory changes.
As a side note, I am worried that while SEBI is making the positive attempts to revive the sagging mutual fund industry with these changes, they are assuming that the 8% that exist are an educated lot and making money by investing into mutual funds. I don’t think that this is the case.
An equal emphasis needs to be placed on the right level of education imparted to these investors. Very few people still know that systematic investment planning is the best and only way to make money from the stock market over a long period of time. I have so many clients who have invested in mutual funds as a one time investment before the stock market sank around 2008. And then they promptly stopped their SIPs !
So my point is that before we focus our energy and discussions on the new changes and ponder on how the hike in expenses is good or bad or whether the ‘direct’ approach is going to be beneficial, I suggest investors do some introspection to first find out whether they are doing things correctly at their end currently.
It is human psychology that your thoughts and actions swing like a pendulum. The center of the pendulum is what brings absolute calmness and that makes you take the right decisions. But when something new happens in the world around us, we swing either ways of the pendulum and get influenced by it.
Investors have swung now and need to come back to the center of the pendulum.
Rakesh says
Good timing of the post. Off late there have been several articles on this change. Given the very low base of Indian MF investors they should not increase the charges. Bringing back Exit Load will not be a good move. They should infact look at various alternatives to attract investors.
TheWealthWisher says
Why do you say bringing back exit load is not a good move ?
Shinu says
Dear Radhey
All sebi actions seems based on their belief that economy is doing bad because money is not coming in. They think the flow of capital to the markets can be increased even the economy is doing bad or the companies are not making money. Who want to invest for charity. Clarity of laws and rules and a fair play ground to conduct business is to be facilitated by governments and regulators W/O changing or goalpost midway. The basic principle of flow of capital is forgot by them. treating a patieat w/o understanding the desease itself. So funny.
Hope they are not dreaming of taxing the capital gasins on MF one day…
Shinu
TheWealthWisher says
Very rightly put Shinu, I could not put it in any better words. Thanks for this.
SEBI always tried to make knee jerk reactions as far as MF regulations are concerned. And they don’t help you know.
Let us wait and see whether these are going to help in any way or not.
My take is they won’t !