Mutual funds a scam

A mutual fund is a collection of some kind of investment, usually stocks. They’re extremely popular. Your parents own at least one mutual fund if they’ve ever worked at a company. Mutual funds works like this: You pick a fund you like (e.g., growth, value, technology, international…), buy shares of the fund, and let a money manager pick the stocks he thinks will yield the best return. In exchange for this diversification and his expertise, you pay an annual fee.
Fund managers are highly compensated but also subject to being fired if the fund performs poorly. The main reason you should care about the fund manager is that you’re basically investing in him — by putting your money in his fund, you’re betting he’ll make you money.
Mutual funds could be sitting on the country’s biggest scam. Ever. The victims: You! In an investigation undertaken by us, we spoke to a whole host of mutual fund managers, financial intermediaries, stockbrokers, and investors — both large and small. The findings are shocking.
THAT the mutual funds have been managed unprofessionally is only the tip of the iceberg. Insider trading, NAV (net asset value) manipulation, motivated investments, commissions going into private pockets, intra-scheme transfers, investors’ money going into the companies of the principals are all part of the game. In addition, absolute non-accountability, high-handedness, broken promises and a callous attitude are just a few things that mutual fund industry can be characterised by.
Hardly any of the funds have been able to deliver a performance worth the fee they charge.
Hello my name is Abhinav gupta I am an MBA in investment banking and wealth management. I have a proprietary trading fund; also have a family business of financial services. I basically assess risk and fund traders/ fund managers for a living.
4 myths of a mutual fund
Invest with us we will beat the market
I call it the 12 lakh crore lie (the size of the mutual fund industry)
The first rule of money is to not get into the game if you aren’t familiar with the rules. Thanks to the marketing gimmicks used by several companies, many of us fall into the trap and invest money before we’re even aware of the rules. For instance, people who invest in active funds need to be prepared about the risks they take because selecting a good fund can be similar to casino like odds. Active funds comprise a $13T industry where the house always wins. No matter if the fund returns profit or not for the investor, the fund will charge high fees.
An incredible 96% of the actively managed mutual funds fail to beat market over any sustained period .( these are data points from the U.S because indian data is not available)
This means that you have a 4% chance of picking the right fund there are better odds in black jack or casino.
Myth 2 ­‐“OUR FEES? THEY’RE A SMALL PRICE TO PAY!”
No matter what you buy, whether it’s a beautiful car or a house, you end up paying more than you initially bargained for, and the investment world is no different. Most companies charge hidden fees and before we even realise where we went wrong, our money is gone, leaving us with a sense of betrayal. Several companies use terminology like trading costs, asset management fees, redemption fees, soft­‐dollar costs and a lot more to confuse people.Over a 20 year period, December 31st 1993 to December 31st 2013, the S&P returned an annual return of 9.28%, the average mutual fund investor made 2.54% ( according dalbar one of the leading research firms)
That is 80% difference
“The mutual fund industry is now the world’s largest skimming operation, a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation’s household, college and retirement savings.”
Illinois Sen. Peter Fitzgerald who wanted fund reforms in the U.S
Best way to explain mutual fund industry: You put your capital in the fund, you take all the risks and Mutual funds make money no matter what happens.
Myth 3 — “OUR RETURNS? WHAT YOU SEE IS WHAT YOU GET”
This is a myth that works just like the second myth with the hidden fee structures. The problem lies in the fact that we don’t get the returns as advertised by the companies. Why, you ask? Some companies would advertise a 25% return even though the return has been flat! Imagine that you invested $100 that turned onto $200 the following year (100%) and fell back to $100 (50%). This simple calculation can be marketed as (100%­‐50%)/2 = 25% average annual return.
Must be a surprise
“ the returns reported by the mutual fund are not earned by the investor” Founder of Vanguard, Jack Bogle, investment management company managing assets worth 3.1 trillion
Now why is that?
The returns you see in the brochure are time weighted.
The problem with time weighted is time weighted assumes that investors have money all year round and no withdrawals. But the reality is we keep putting money throughout the year.
And the return may change if we put more money when the fund performs well or less money when the fund performs badly. (Which is generally the case with every investor)
MYTH 4: “I’M YOUR BROKER, AND I’M HERE TO HELP”
Most mutual fund Brokers who promise higher returns on your investment constantly influence us, but shockingly, a study created by Morningstar in 2009 proclaimed that about 49% of mutual fund brokers didn’t invest in the funds they managed! ( again data from US)
This just goes to show that they don’t believe in the product they advertise.
The system is designed to reward them for selling and pushing them the highest management fees and commissions.
Suggestion-There should be law stating the guy who sells u anything at least should own some units of that mutual fund.
Here are certain billionaires who echo the same sentiments-
David Swensen — David Swensen, the man who turned $1 billion into $23.9 billion, says that it’s a bad idea to invest in mutual funds since the fees are often in conflict with the returns, thereby making the investor lose large amounts of money over time. Since he understands the benefits of fiduciaries, he advocates firms like TIAA­‐CREF and Vanguard because they operate on a system that takes care of an investor’s interests.
John C. Bogle — As the creator and founder of the Vanguard Group, John is often compared to Benjamin Franklin, thanks to his inventiveness. Many people believe that he has singlehandedly contributed more towards the interests of the average investor than any other company by inventing ETFs. The solution is simple: Invest in ETFs and get a market return at the lowest possible fee. John had a great quote that addresses the importance of avoiding high fee mutual funds, he said, “At 6.95%, you turn $1 into about $30 over a 50 year period. But at 5% (assuming a 1.95% fee), you get only $10 instead of $30. And what does that mean? It means you put 100% of the cash, assume 100% of the risk, and you get 30% of the rewards.”
Warren Buffett — Known as the titan and the greatest investors of the 20th century, Mr. Buffett doesn’t even need an introduction. Though he’s said almost everything about the investment topic, Mr. Buffet affirms that buying an ETF is definitely the best and most cost­‐effective way for an average investor to make money.