The Devil in the Disclaimers

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

“Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.”

You probably read this disclaimer the same way you listen to it on radio or TV ads – without giving it a second thought. Right? Who cares about disclaimers, anyway? They’re merely a collection of obscure words that pass through our senses without garnering any kind of effect on us. We read or hear them, and we forget about them even before we have finished hearing or listening to them. Such is the life of disclaimers! Nobody takes these poor souls seriously enough. Certainly not mutual fund investors.

And maybe, just maybe, it’s not entirely your fault. These scheme-related documents that you’re supposed to read probably remind you of the texts you faced before your 10th standard board exams. You somehow did manage to cram your way through your exams, but you’re definitely not interesting in suffering through the fine print before you invest in a fund. And so you largely ignore the disclaimer.

But you probably wouldn’t if the disclaimers were a little bit more realistic, specific and hard-hitting. Something like – “Mutual fund investments are subject to market risks. Your hard-earned money will go down to the drain if you’re not fully aware of what you’re investing in.” Now, that is something that would surely make you sit up and take notice.

You would not only sit up and take notice, but look at your distributor or agent sceptically if the disclaimer was something like – “Mutual fund investments are subject to market risks. You’re being shown only a trailer, not the entire movie about how this fund has actually performed.” As we all very well know, the movie rarely manages to live up to the expectations created by the trailer.

To take this a step further, how would you react to a disclaimer that said – “Mutual fund investments are subject to market risks. Your fund distributor or agent is probably going to benefit more from this investment than you.” You obviously wouldn’t like this, would you? But such an explicit disclaimer would be as true as the subtler ones. Agents and distributors often push financial products that earn them higher commissions. It is up to you to make sure you don’t fall into a trap. You have to ensure you make an investment that will be best poised to help you meet your goals.

And hence the statutory disclaimer that asks you to read the scheme-related documents carefully. The fine print is important because the devil is in the details. He’s lurking somewhere in the tiny texts that you will have to squint to read; he’s banking on the fact that most investors remain unaware of his presence. Your ignorance is the devil’s gain. To make sure that doesn’t happen, read all scheme-related documents carefully. Or at least, be fully aware of what you’re investing in.

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