Recently, two notable developments in the mutual funds sector caught all eyes. One was the report by Crisil-S&P Dow Jones Indices on the performance of the MF sector in the past 5 years. The other was the observation on SEBI’s steps to revive the MF industry by Quantum MF.
The Crisil-S&P DJI report said that a majority of the actively managed equity mutual funds had underperformed their respective benchmark indices over the past five years ending June 2012.
The Quantum MF report, referring to the changes being proposed by SEBI, felt the steps would breathe some life into the industry that has not been able to mobilise savings from investors.
The issue is whether the investors are willing to put their hard-earned money into the capital markets. S.Karthikeyan, Professor-Finance, Jansons School of Business, Coimbatore, said the reluctance to invest was not uniform across all investor segments. The experienced, who “stayed calm and stayed invested” across many market crisis in recent past, have learnt from their experience. The inexperienced are investing since they have no fear.
Only those with a little experience are fearful. Asked whether the revival of the markets could precede that of the revival of the economy, Karthikeyan said “investment theories say like that” and it had happened in the past. If the fall was because of economic cycle a reasonable prediction on recovery could be made. On the dismal performance of a large number of even blue chip MF schemes over a 1-5 year period with many falling even behind their benchmarks, Karthikeyan, who is also a Director in Coimbatore Capital Ltd, said this reflected the inexperience of the fund managers who failed to understand that “missing an opportunity is less insignificant than that of investing in a loser.”
What holds good for investor was also “good for fund manager and fund houses” and they should realise they could not create non-existent investment opportunities. On what taxation measures the Government could take to revive the capital markets, he felt this would work when the real business was active. But the problem now was performance. The Government must promote investment culture and target non-investors. What was needed was cultivating the investment habit in the minds of the savers and the regulator, exchanges and the Government must concentrate on training in “investment process than procedure”.
Karthikeyan, asked on what was preferable – a liquidity driven rally or that driven by fundamental strength of the economy, said “fundamentals- driven rally is preferred.” Liquidity driven rally could not be avoided but much of the liquidity driven rally “may not sustain” and it was a “risky bet.”
While some make money in that, investors must recognise that it “happened because of luck and boldness, not skill.” There is “no reasonable alternative to sound investment decisions in long run,” he concluded.