December 18, 2014

Don’t Underestimate The Hate

In March, this year, a body of financial advisors put forth the results of a survey of investors in mutual fund schemes that suggested that 14% of them were dissatisfied/unhappy with their investments.  I couldn’t quite make out how representative this was of mutual fund investors across India but by speaking to industry insiders I gathered that this number was as low as anyone could have hoped for.

I didn’t give this much of thought until a couple of weeks ago when I saw a piece that was published in the Times of India (TOI) under the title, Why millions choose not to invest in MFs, and in the Economic Times under the more modest title, Six reasons why mutual funds are unpopular among investors.   As would be expected, some readers disagreed.  What struck me, though, was that the majority of the comments on the TOI website expressed an abhorrence for mutual funds.  It gave me a feeling that maybe the number of dissatisfied investors was probably much above 14%. 

I reproduce below some of these comments (without correcting for typographical/ grammatical errors):

“MF a suckers bet”

“It would like giving your money for others to gamble. And you will get less than what the funds make! That is built in.”

“…investing in shares or MFs itself is a gambling and taking risk in investing directly stocks , will give more rewards than MFs”

“…they play gam with investor money not companys own money , means "MUTUAL FRAUD" head and tail they win both way”

“…20 years ago I invested 50,000 in three mutual funds. Today that total amount is worth 22000. I tell people never to invest in MFs. it is almost impossible to even speak with of those MF managers.”

“Never ever invest in MF, we will loose our Principal amount, most of them are cheaters…”

“…you think we don't understand the huge amount of money siphoned away in terms of admin and whatnot charges. Reduce your appetite and you will see people investing. Don't speak like a paid representative of a mutual fund gang.”

“Mutual fund are a sophisticated way to rip people off and take them for a ride. They faster they die the better.”

“What you get told at time of investment is entirely different to what actually happens. The salesmen conveniently choose to downplay the high percentage of money cut as "fund management".”

As I see it, these comments should give the industry a lot to think about.

Firstly, though most of the comments flow from individual experiences, these commenters seem unable to isolate these from the concept of mutual funds and are, instead, deriding the concept.  One could argue that this calls into question what the industry has done to educate investors.

Secondly, the negativity in these comments makes a case for the industry to reach out and engage with these individuals.  It is a widely acknowledged fact that we share bad experiences with many more people than we share good experiences with.  One authority cites a study on experiences related to a high value service where it was seen that a median of 8 persons were told of a good experience while a median of 16 people were told of a bad experience.  I can’t even begin to imagine what these commenters may have told, and would be telling their friends and colleagues about mutual funds.  And if every such individual has, indeed, voiced their feelings to 16 people, the industry has a herculean task in trying to correct the impression.  To put this into context, AMFI’s Investor Awareness Program has, thus far, reached out to around 14 lakh people.  All those efforts could potentially come undone if 88,000 investors, who share the feelings of these commenters, were to each talk about these to 16 of those people.

But, that’s not all.  There is also the issue of many more people, reading and being influenced by those comments.  A number of these commenters, in the language of the TOI, were ‘influencers’ i.e. someone, whose comments, at least 100 people have agreed with, or recommended.  Amongst them, there were some who were ‘influencers - level 7’ i.e. someone, whose comments, at least 2500 people have agreed with, or recommended.  These comments should hence compel the industry to give some serious thought to managing its online reputation. 

Thirdly, and most importantly, the industry needs to look into the root cause of such discontent.  Most of these are, evidently, complaints arising out of investments in equity funds.  If this is how they feel at a time when equity markets are in the midst of a bull run, I shudder to think how they might feel in a bear phase.  Of course, it is also possible, that these comments stem from old wounds that this piece may have re-opened.  Either way, I feel that there is a need for the industry and individual fund houses to do some soul searching, particularly when it comes to how equity funds are sold. 

I suggested elsewhere that investing in equity funds is akin to taking a strong medicine.  Strong medicines are generally not available over-the-counter; these need a prescription from a qualified doctor.  Equity funds, on the other hand, have been, and continue to be accessible far more easily.  Truth be told, most advisors selling these, though legally qualified, are little more than peddlers with a pitch. Worse, they are being incentivized by fund houses to sell closed-end schemes at a time when stock markets are at an all-time high.  Clearly, the lessons of the 90s haven’t been learnt.  For the sake of this industry, I hope that these comments make it think hard about what it should be doing.

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