Being risk-averse, investors usually receive guidance for investing surplus funds in mutual funds that would deliver capital appreciation which can beat the returns of the government securities. This constitutes the benefit of inflation and surrender investors current purchasing power and also restricts the exposure, which they get after unleashing in front of the equities. But, the recent announcement about the exposure of Rs. 422 crores in Funds of Funds (FoF) scheme of Franklin Templeton after winding up their six debt schemes that were carrying the credit risk got scary as the veteran mutual funds’ managers with fancy degrees, having a long experience in handling the Asset Under Management (AUM) of billions could expose the funds of millions of investors to some shady investments.
Responsible factors
It is painful to mention that the delegates of the mutual funds have shifted their blame to ongoing illiquidity in the Indian market due to the outbreak of Covid-19 that has restricted the bank and other financial institutions from lending to companies with moderate or low credibility. Moreover, the soaring redemption pressure from investors due to rising fears of Coronavirus as they are finding, sitting on cash, a better bet to bank upon has forced them to shut down the six debt schemes. However, the initial idea of investing through an indirect approach is made to safeguard themselves from times of high beta and economic slowdown while redemption pressure from investors is not a new normal for the mutual funds in times of economic deterioration so the given statement seems unacceptable.
Direct Vs. Indirect Returns
It is worth mentioning that investing in top five private banks since the global crisis (2009) have delivered 68.56% yearly returns till the beginning of 2019 and the variable includes Yes Bank, which has been through huge carnage after the IL&FS crisis and the maverick HDFC Prudence Fund has delivered 18.93%. Despite stellar returns from investing in top five private banks without making much effort on scrutinizing the financial statements of every company, the investors decided to walk through the indirect way of investing and surrendered their controlling power over their funds to fund managers.
The wind up of debt schemes has left the investors in panic as they are not able to withdraw their funds immediately and have to wait longer. Even the long-awaited redemption doesn’t guarantee the money back as many corporate bonds under these schemes are carrying a high risk of default that would leave nominal receivables.
The complete massacre has left a question in the minds of potential investors that: Is it worth channelizing the funds’ inequities through the route of mutual funds as lower returns are not taking the guarantee of a safe investment.
Looking at the constituents of six debt funds winded up recently, the corporate bonds undertaken by the company were not carrying the coupon of high credibility and convexity of the bonds. “The move of investing in those corporate bonds was more an aggressive bet rather than a safer one, which has grown scepticism over the credibility of mutual funds. In comparison with equities, debt schemes have always been a safer bet and collapse of debt fund schemes has activated the panic mode of investors,” Kaushlendra Singh Sengar said. He further added that “Rather than diverting the control of investment into the palms of mutual funds, the investors should invest themselves by taking proper guidance from investment platforms as they take no control over your money but guide you in rebalancing your portfolio and generate more returns in comparison with the paradigm of traditional mutual funds returns.
There is no denying the fact that investment in mutual funds comes with coupon risk and advice of stay in for at least five years. Moreover, the selection of an ideal scheme requires the thorough scrutinize of the asset allocation by the fund manager or any guidance from reputed Financial Planners for choosing the right funds comes with a cost of consultancy that diminishes the total outlay of the funds after some time.
What investors should do?
After observation of yearly additions of funds into Mutual fund industry, one could state that investors are agreed with stipulations of longer period staying, paying commissions to Financial planners, taking the substantial amount of risk at meagre returns. So, rather than investing through the mutual fund route investors can achieve their desired returns fulfilling the stipulations of safety and control that mutual fund industry is unable to discharge by investing directly into equities that could deliver manifold returns with the help of Invest19 platform.
What is Invest19.com?
Invest19, a one-touch multi-lingual wealth building platform, is a blend of technologies that provide expertise for every type of equity class to every kind of investors and make Investment easy, also help them to gain expertise themselves. The merits of the platform are not restricted to building a portfolio for the newbies but also help the investors in rebalancing the portfolio, which gets hit hard due to weak selection of companies, from the guidance of our experts. The platform provides an opportunity to start the investment with a nominal investment of Rs 100 and carries a major characteristic of notifying the investors to make necessary changes in their portfolio if experts find any fruitful opportunity. The platform is designed in such a simple manner so that every investor could understand and not find any complication while building a goal-oriented desired portfolio.