The Hindu Business Line : MF investors largely ignore prospectus

Now, you have surely heard that statement before, but coming as it has from ICI, the world's largest association of investment companies, it assumes significance once again.

This time, ICI has stated this in a new study on investor preferences.

For those who are interested in knowing more, allow us to say that the survey (claimed to have been based on several hundred interviews) was unwrapped at ICI's general membership meeting, held in Washington earlier this month.

Investors in India may also consider the findings quite important, especially in the context of some of the trends that have firmly found their place on the domestic asset management front. If you compare these with what are commonly seen in the US, you will be able to locate lots of similarities.

Check out this, for instance. ICI has ascertained that recent fund investors (in the US) "make little use of prospectuses or shareholder reports". In fact, roughly two-thirds of them do not consult these documents while making decisions on purchases. And this is what the study has added: Fund investors are flooded with data (read: disclosures and miscellaneous other information), which are largely ignored. Instead, the general intention is to source "simple, concise information" on issues like fees and performance.

Keen on fee

So, what is that investors really treat as most important?

If you go by what ICI has pointed out, the factors they consider most notable are fees (74 per cent, says ICI), historical performance (69 per cent), risk (61 per cent), performance relative to an index (55 per cent) and sales charge (52 per cent).

"Nearly nine in 10 investors expressed a preference for receiving mutual fund information in a summary format containing precise descriptions and to documents that use charts and graphs over narrative descriptions of investments", the study has mentioned.

Comparing the issues prevalent in the two countries, aren't there aspects that are way dissimilar? Yes, and here is a big one: In the US, most people depend on professional advisors; in this nation, one rarely turns to financial planners.

An age-old habit leads us mostly to the friendly-neighbourhood, commission-driven distributor, leaving little scope for true financial planning.

The situation in India, we feel, should actually prompt professional investment managers to do at least a couple of things right.

Care retirement funds

One, there is a need to reach out to more savers across socio-economic categories by expanding delivery networks. Two, long-term allocations for retirement through defined-contribution schemes must be actively encouraged, perhaps with tax breaks.

The asset management industry here must relentlessly pursue both goals, keeping in mind some of the Indian market's most elemental features - changing demographics, escalating medical and education costs, a general under-investment in equities and so on. These issues must be addressed even while fund managers fine-tune their responsiveness to the user community, shore up their accountability and remain committed to regulatory policies.

One last word. Interestingly, an increasing number of the US-based investors are taking to technology while sourcing information and even carrying out transactions.

Now, as every one will agree, this is an area that is set to grow bigger all over the world, thanks particularly to the Internet. India will certainly not be an exception.

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