Is 'Mutual Funds Sahi Hai' really always true?
Okay, I admit that the title goes against conventional beliefs that mass media and TV ads love to parrot daily. So, bear with me for a while to know the other side of the story. Let me tell you what neither the ‘Mutual Funds Sahi Hai’ ad makers nor the AMFI (Association of Mutual Funds in India) will ever tell you. Skin in the game Does your mutual fund manager invest a substantial part of his own personal wealth is in his own fund? If a fund manager is investing elsewhere, what does it tell you about his own confidence in his own ability? Here are some examples . Although this report doesn’t tell the investment amount as a % of the manager’s net worth, you can clearly make out that 20–50 lakh must be a minuscule % of the fund manager’s wealth. This is a clear asymmetry of risk and return. They get to keep the upside in the form of annual bonuses with no equal penalty for the downside. You and you alone get to bear the risk. True skin in the game means one must bear both the upside...