We all keep hearing “Mutual Fund sahi Hai”, ARE THEY ?
Let’s see how most funds performed compared to Nifty 50 Index Fund when the days are gloomy shall we?
“All profits mine and losses yours” – Fund Manager
Less than 50% of the Fund Managers invest in their own funds. Think about it… Lack of confidence in their own ability to beat the market ?!
There are a total of 32 schemes out of the top 100, in which fund managers have no investments of their own, and another 18, where the investment is less than Rs 10 lakh. Thus almost 50 percent of these schemes have negligible investment by their own fund managers – source
How did a low expense ratio nifty 50 Index Fund perform ?
Index or in other terms “the market” gave a return of 7% Compared to what the Mutual Funds curated by the so called Market Experts and that too with an exorbitant expense ratio of ~3%.
Fund houses will proudly justify the 3% Fee being charged in the name of expense ratio as they claim to beat the market comfortably ( which is clearly NOT TRUE ).
On a longer run an expense ratio of just 2% can eat upto 45% of your returns, which is mind boggling !
Index funds have yielded a compounded interest ( CAGR ) of 15% since the day of inception.
A fund that generates a negative return of -13% would actually mean a return of -20% as one has lost the +7% return that the market could have given for the same period !!
Today there are 3000+ mutual funds in India and 90% of them fail to beat the Index. Nobody can predict the market for the next year, month or days. But the fact remains that market will go up on a longer run say 15 years from now for sure.
See how bad it was for most of the Funds when there is a Bear market and yet Nifty Index Fund is in profit !
In 2020, The market went ballistic , what happens when the market is down? Index Fund fairs the best !
“These so called market experts are charging us just for breathing “ and have absolutely no clue about anything. – Charlie Munger
There is also the dark side ?
When talking about Mutual Funds the investors are always shown a rosy path to Financial Freedom with Funds giving a return of 25% or more consistently over the last decade. This is a a classic case of “Survivorship Bias”. What about the funds that were once stars and then when close/shutdown as their numbers were not good?
There are thousands such Mutual Funds that have been shutdown and a quick Google Search will show ,this list is nowhere to be found. Fund Houses have a great skill to bury them too !
Only 3% of Mutual Fund Managers on a longer run can beat the Index. The game is to generate compounded returns and Index Fund seems to be the only vehicle in the stock market that can do it consistently.
I have also found that most banks and firms don’t even list Direct Mutual Fund(MF) and only have Regular MF listed.I plan to cover Regular versus Direct MF in a post soon .
Don’t just hand over your hard earned money to a so called advisor. Better hire a monkey if you really think a high cost advisor is needed !! 
Avinash.tech(...) 