The Hindu Business Line : Information

HAVE you ever wondered whether mutual funds and their distributors are inundating you with unnecessary information? If you have, you are not alone. Welcome to a club made up of like-minded investors, those who feel they are constantly being snowed under an overdose of information.

The situation is actually creating a lot of problems for some of them, adding to the general confusion that may be already troubling their investment careers.

Fund houses at the moment have to provide some statutory data but a serious amount of statistics gets tossed around by intermediaries who are often eager to sell specific products.

Check out the literature that many distributors produce for the benefit of their clients and you will get an idea. Even the most boring ones - and certainly the better-produced and intelligently-crafted items - provide a lot of dope these days.

But what may possibly be wrong with a little extra information? You may well ask that question. But consider the following before you do so: That information is often very one-sided, frequently laced with comparative figures that underscore superior performance. Added to it all are stories of successes & failures carried by newspapers, live analyses on television and even the many awards and even the many awards that have been instituted in recent years.

A few distribution outfits do their best to explain things to customers. Some make it a point to focus on popular investment theories, strategies that need to be pursued in different market conditions and principles that are being followed by fund managers. The boring bits hit you when distributors begin to talk too loudly about ongoing IPOs, forthcoming dividends and the like.

MF sources argue that this is just a way - an effective and low-cost way - to win investors. Distributors, after all, must necessarily communicate with clients to the extent possible. And their messages must clearly spell out all pertinent details. All said and done, some of these messages can be extremely relevant in terms of content.

Take, for example, those that relate to such basics as systematic investments. "A good way to do your equity allocations is through SIPs" and "Study your risk profile before you do your asset allocation" are both precious and timeless. So is the idea of investing for the long-term. Or the concept of adequately diversifying your portfolio to include various asset classes. There can be other instances.

The point is distribution outlets must be very careful when it comes to dissemination of information. All relevant issues must be covered, all disclosures must be provided, all caveats must be placed for careful consideration.

Simply extolling the virtues of, say, a mid-cap equity fund will not be enough. The possible pitfalls of taking an exposure to such a fund must also be discussed simultaneously. Customers should be told that mid-caps may represent a somewhat higher measure of risk and that the stocks in this segment may be comparatively illiquid.

A fund house and its distributors should be held collectively on these counts. For the product manufacturer (that is, the MF concerned), empowerment of distributors is a key responsibility. Information is power and the provider of information may actually make or mar an investor's overall returns.

Feedback may be sent to nilanjan@thehindu.co.in

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