Why you should not invest in mutual funds.

It’s been a long time since we sent our last email. The last couple of months have been terrific. Lot of our premium members have emailed us that they are sitting on some huge gains thanks to our service. Such emails make us very happy, so keep’em coming.

In almost all our emails we preach that most investors who do not have the tenacity to do their own stock research should invest in an Index fund called Nifty Bees instead of mutual funds. We have some data to back it up.

Lets take the case of DSP BlackRock Mutual Funds.

They have 28 funds in their portfolio, most of them invest in equities while some are balanced(equities and debt) funds, some purely debt funds and so on. Out of those 28 funds only 9 funds were able to beat their respective index, only 9. e.g If the fund’s objective is to invest in the top 100 publicly listed companies in India, that mutual fund should be able to beat the S&P BSE 100 Index. If it fails to do that then you actually lost money by investing in that fund.

We were also reading the UTI Infrastructure fund’s annual report, on the second page itself its written clearly that the return of the fund since inception is 12.63% while Nifty Index is 13.77%. 10,000 Rs invested in that fund would have grown to 32,797 Rs. while the same 10,000 Rs invested in Nifty Bees would have grown to 36,267 Rs.

If the fund is not able to beat the index you still have to pay the management fees and other expenses. All the marketing expense, the salary for the fund manager and other costs comes out of your pocket.

Of course we are not saying that all mutual funds are bad there are some who are able to beat the index but then its your job to find such funds and all the funds have the standard disclaimer “Past performance may or may not be sustained in future”.

This is why we preach that most investors should just invest a fixed amount of money every month in an index fund called Nifty Bees.

Stocks

Now coming back to individual stocks, last year we said that we invested our own money in two banks, Axis bank and Oriental Bank of Commerce. We sold our position in OBC at around 120% profit, the stock price went up after we sold our position but since we are not greedy there is no point in regretting that decision. We were not comfortable holding a public sector bank for the long term that was the reason why we sold it. We still hold our Axis shares. ( Read our previous articles on the website where we discuss why we bought these two stocks)

A quick note to all the new members, we occasionally talk about our own portfolio to educate our members not to provide investment advice or tips. Please do not call us for stock market tips.

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