The Hindu Business Line : MF mysteries unravelled

Sundar Sankaran's Indian Mutual Funds Handbook from Vision (www.visionbooksindia.com) is out in its second edition, with 100-plus+ new pages. "Total mutual fund assets under management at the end of December 2006 were above Rs 3.5 lakh crore, which is more than 10 per cent of total deposits in the banking system," notes the foreword by Shekhar Sathe. "Close to Rs 2 lakh crore of those assets were invested in debt and money market instruments; the rest being equity assets." An indication of `the increased disintermediation of risk from banks to investors,' comments Sathe.

`The book aims to unravel some of the mysteries and clear the typical confusions,' assures the preface. And Sankaran delivers on his promise by explaining the concepts and practices through examples and quotes, stories and case studies. For instance, the intro opens thus: "On my way to the office of Opportunistic Mutual Fund, I decided to visit the No Promises Laundry." What is the connection? "In a laundry, when you give one shirt, you will certainly not get two shirts back. In a mutual fund, you can double your investment — or lose your shirt in the market," explains the author.

"Stock market is not pure science and not like chess, where the superior position always wins," reads a line from Peter Lynch in a section on `Risks in equity investing'. Elsewhere, you'd find Lynch comparing bottom-fishing (investing in a falling market) to `trying to catch a falling knife'. It is normally a good idea to wait until the knife hits the ground and sticks, then vibrates for a while and then settles before you try to grab it, suggests Lynch. "Grabbing a rapidly falling stock results in painful surprises, because inevitably you grab it in the wrong places." Thus, in the popular investor pastime of bottom-fishing, `it's usually the fisherman who gets hooked'. The chief losses to investors come from `the purchase of low quality securities at times of favourable business conditions,' counsels a quote of Benjamin Graham. "Risk is brewed from an equal dose of two ingredients - probabilities and consequences," says Paul Slovic...

Educative brew.

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