The Hindu Business Line : Are you reading the fine-prints?

Have you, in the course of investing in mutual funds, scanned an offer document closely - close enough to know exactly what's what? Have you ever given it anything more than a quick reading, despite knowing that you will miss out on vital points? Well, assuming that you are saying a blunt `No' to those questions, you are not alone in this world. In fact, a lot of investors are probably like you, complete with flawed approach and sloppy habits.

If that sounded a bit offensive, tune in to the findings of a recent survey that tried to outline the information needs of mutual fund investors and locate the sources from which they acquire information.

You may be shocked to see that most of them do not consult fund offer documents or annual reports - records that provide precise information in line with regulatory requirements. In many cases, such records are seen as far too lengthy and difficult to comprehend.

It has been also found that investors seldom raise queries about or otherwise assess fund managers and boards of directors of asset management outfits. Typically, as far as recent entrants are concerned, the focus is on performance, the value of holdings, net asset value and expenses.

However, there are a few silver linings too. Investors, it has been found, do consider a range of information before making purchase decisions. And they do pose queries about fees, expenses and past performance. At another level, they consult (to ascertain and interpret fund-related information) professional financial advisors as well.

Net users

The survey, conducted by Investment Company Institute (ICI) of the US, will no doubt find a parallel in this country too. One of the more interesting findings is that investors use the Internet quite effectively, a phenomenon that is just shaping up in India. The Net here is increasingly being used to manage finances, collect information and track portfolios.

Let's take a minute to talk about new entrants, who mostly check account statements and confer with their advisors. The latter, in the US at least, are a "predominant source" of information. That is because most investors own funds through them and want advisors to review such information. `Advisor', incidentally, is seen as a broad concept and includes "full-service brokers, independent financial planners, bank representatives and insurance agents". These players are active in the Indian market as well.

Of particular interest is what ICI says are "investors' opinions about the format of mutual fund information". Apparently, a vast majority of the new investors prefer summaries and graphic presentations. In fact, 8 out of 10 people surveyed indicate they want concise descriptions and not very detailed ones.

Given this inclination towards briefly-worded texts, only a relatively small percentage of investors turn to offer documents and the like. The overall readership is very low and about one in five recent investors actually admit that they "usually discard the prospectuses they receive without reading them".

Here are some interesting nuggets of information, taken from the survey:

* Four in 10 unitholders have consulted friends, family or business associates for fund-related information before buying

* About one-third turned to prospectuses, unitholder reports or the media

* A quarter or less obtained information from mutual fund rating services, telephone callers or fund company literature.

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