Sunday, February 13, 2011

Are you confused? Indian mutual funds vs direct investment in stocks market
I'll start with a few questions
1. The best Indian mutual funds companies are rolling out attractive mutual fund schemes in the SIP mode, why the sudden shift from promoting lump sum investment in mutual funds to the already existing SIPs???
2. Is it better to invest a lump sum in these mutual fund companies or do some systematic investment planning in a monthly investment from your savings??
I think these mutual fund companies want to confuse you further so that you choose between the two options and they get to lay their hands on your money and the three year lock in period( or is it going to be 5 years lock in period?) will ensure that they can enjoy the investors money, pay their employees and after the lock in period is over and the investor redeems his money levy another 5- 10 % for premature redemption. I think it is  winning proposition for the mutual fund companies and a costly learning lesson for the poor investor.

The government and the regulatory bodies wanted to encourage the salaried class to invest in the equity market and therefore they gave tax exemption for investment in ELSS  funds so that investors invested with these mutual fund managers, secure in the knowledge that their money would grow in the competent hands of these financial whiz kids.
If you have invested in these mutual fund schemes year after year for three years or more you will realize that the returns promised have not been delivered. Journal of Finance claims that   out of 30 highly rated mutual fund schemes, 20 gave less than 5% returns This is less than a bank FD.So, the best thing to do would be to cut your losses and take charge of your investments. Take consolation in the fact that you saved on taxes at least. First thing to do would be to open your de- mat account  and start buying potential blue chip stocks and multi bagger stocks directly from the comfort of your home or office month after month if you want to do it the SIP way or a lump sum investment every year. The DTC is becoming effective in 2012 and the tax exemption on ELSS is being lifted wef April 2012. So the hint from the government is clear and the message is to follow the direct investment strategy in the equity market.  No need to panic. Discover the need to  invest long term in a diversified equity portfolio and  go through this post on multibaggers.

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