Good News + Bad News = Actual News

(This column was first published on Value Research Online.)

Folks, first the good news – I was awarded the ‘Most Productive Employee’ trophy at my workplace for the month of January. Wait, before you start congratulating me, you should first hear the bad news – I work from home. Doesn’t have the same ring to it, does it? It isn’t even true. When you work from home, your competition is your mother and no one can ever be as productive as a mother. She has more things on her mind than any hotshot working his or her butt off at the office. Someone like me, who works from home, is no competition. On the productivity scale, she wins hands down!

But that said, isn’t it weird how the bad news changes the whole perspective of the good news? Looking at both of them collectively gives a clearer idea of how things actually stand. Take for example the recent news item we have been reading about the burgeoning assets of the mutual fund industry, especially the rise in the AUM of equity funds. We recently learned that equity funds have added over 12 lakh investor accounts since April 2014, while their assets stood at the highest-ever of around Rs 3.4 lakh crore in January 2015. These are impressive numbers, no doubt. The fact that more and more retail investors are putting more and more of their money into equity mutual funds is good news. But the bad news has to do with how this money is coming in.

Data released by SEBI and AMFI has shown that a major part of this money has come through new fund offers, especially close-ended schemes. Now, that’s not good. The best way to invest in equity mutual funds is through a systematic investment plan in a fund that has proven credentials. Investing in a new fund means you invest a lump sum amount to begin with, that too with no idea about how the fund is actually going to perform. Such an investment goes against two of the most basic tenets of successful investing. It puts the investors at risk of not only losing their money, but also losing the will to stay in the equity markets and enjoy the long-term benefits of systematic investing.

Of course, from a larger perspective, more retail money coming into the equity markets is good news. But it would have been better news if this money was in the form of long-term investments, not short-term punts to ride the rising market bandwagon.

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