There is No Fate But What We Make: June 2009

Saturday, June 27, 2009

Mutual Funds continue to disappoint me

When I invest in a mutual fund, I am basically saying that I would rather have an expert manage my funds and for that service, I will pay a percentage of my money. In this relationship, the investor is the employer and the customer. The expert (fund manager) is the employee and the service provider. But how many of us hold the expert accountable for underperformance? Do the fund manager consider it a job they are accountable for?

I invested in a bond fund (Birla Sun Life Income Plus) late last year. This is part of my emergency fund (rest of the emergency fund is in a Liquid fnd).

The YTD returns of this fund is -3.27%.

First, I asked the agent about this. No response. Of course, I didn't expect any. Agents generally consider their job to end once the NFO form and the cheque has been submitted and the commission has been obtained. Till the next NFO comes, the customer is off the mind.

So I asked the AMC why the returns are negative even though interest rates have gone down. (when interest rates go down, bond fund NAV goes up). I didn't get a satisfactory answer. I got a standard patronizing response. ("Bond fund returns depend on many factors. Be rest assured that our fund manager strive to maximize the returns by investing in to securities as per scheme objective"). The correspondence so far has been given below. I will update it as it progresses.

Anyone has any clue why bond fund returns have been negative off late? As a category, the YTD return has been negative.

Correspondence with Birla Sun Life

-----Original Message-----
From: S.Sarkar
Date: Friday, June 26, 2009 08:21 AM
To: birla mf (
Subject: Question on a fund I have invested in


can you tell me why the NAV of 'Birla Sun Life Income Plus - Growth' is going down? The interest rate has been moving downwards. Still the NAV is going down.


From: A_Connect
To: S.Sarkar
Sent: Sunday, June 28, 2009 2:03:56 AM
Subject: RE:'BSLFS=008-181-302' Question on a fund I have invested in

Dear Sumant,

We thank you for writing in to Birla Sun Life Mutual Fund.

With respect to your query, we would like to inform you that bond yield in the debt market decreases with the decrease in the interest rate in the market, which results in the decrease in the valuation of investment. (Comment from Sumant - fair enough. Bond interest may go down. But that no way explains why NAV would go down!)

However, the scheme NAV also depends on the various factors.

Further, please be rest assured that our fund manager strive to maximize the returns by investing in to securities as per scheme objective.

For any further information or assistance, please feel free to contact us between 9 a.m. & 9 p.m. from Monday to Saturday on our toll-free number 1-800-270-7000, or, on 022-6691 7777 (non toll-free). You may also visit our web-site

To avail of the bouquet of value added services we offer/ to request for an Account Statement/ to sign up for SMS/ Email alerts, please click on the links mentioned below:

Online Access registration || Statement on demand || Sign up for Services( SMS / Email alerts)|| To post your feedback || Branch list ||
We assure you best of our services and look forward to your continued patronage
Mohd Shabbir Khan
Client Relations
Birla Sun Life AMC Ltd

----- Forwarded Message ----
From: S.Sarkar
To: A_Connect
Sent: Saturday, June 27, 2009 9:08:24 PM
Subject: Re: 'BSLFS=008-181-302' Question on a fund I have invested in

Thanks for replying.
First of all, whenever interest rates go down, the bond prices go up.
NAV should go up and not down.
The interest income may come down, but the returns should not become negative.
So I still don't know why the NAV has gone down.
As an investor, I have a right to ask the fund manager why returns are negative.

Moreover, if you see the YTD returns, Birla Sun Life Income Plus has returned -3.27%
But the category average is -0.83%.
Why has Birla Sun Life Income Plus lagged the category by such a huge margin?


Monday, June 22, 2009

ActiveStatement - Nice online service from CAMS

This is a really good service from CAMS (Computer Age Management Services). If you have invested in mutual funds and provided an email address in the fund application, you can enter the email address here at the CAMS site. It will fetch ALL your fund portfolios and send you an encrypted & password protected statement covering all the funds. There's more.

Once you have received and opened the statement, it comes "alive". You can interact with it like it's an application. Provide inputs, make corrections, view information on your holdings.

It even let's you do transactions (I haven't tried it yet). It's rare when the Indian financial services industry comes up with an innovative product that is useful for investors. So this definitely is a welcome change. This product is so good that if I were a regular mutual fund investor, I would pay to have access to it. It's possible that the product may become a paid product in the future. Or regulations may severely curtail its usefulness. So enjoy it for free till then. After that you can take a call if you would find it useful enough to pay for it.

Sunday, June 21, 2009

Sometimes even prominent magazines get it wrong

Money Today magazine's current issue provides a list of mutual funds and their past performances. Here's a snapshot of a page:

In the column for price, the fund NAV is listed. What is the price of a fund ? Is it the NAV ? Most investors fail to grasp the meaning of a fund NAV. The absolute value of the NAV is of no consequence. It's just a notional figure. It certainly does not represent the cost of a fund. The cost of a fund is the annual expense ratio and the entry/exit loads. That is what should have been provided here. Sometimes I feel there's a conspiracy to keep the expense ratio under wraps. In the fund documents, it's buried deep somewhere and is hard to fund. Magazines don't talk about it as much as they should. Considering that such magazines are dependent on advertisement revenues from financial companies, it's not hard to see why.

The focus needs to be on the expense ratio

It's heartening to see the attempts to reduce the entry load for mutual funds. However, the thing that is more insidious is the annual expense ratio. Let's consider that 1 Lakh rupees is invested for my retirement which is 25 years away. Let's say I save the entry load by going direct. Consider a fund that makes 10% CAGR and has a 2% expense ratio. The investment grows to Rs. 6,53,840/-. Now assume I pay 2.25% entry load but the expense ratio is 1.5%. In this case the investment grows to Rs. 7,25,843/-. This is more than 11% higher than the earlier case. So it's clear that common investors are better served if the focus is on reducing the expense ratio. Compared to the western countries, Indian funds charge 2% or more in terms of expense ratio. Even index funds which don't have to hire a fund manager charge more than 1%. Retail investors should make a concerted effort to reduce the annual expense ratio charged by the mutual funds.