Beware of the weapons of mutual fund mis-selling

“I made a couple of amazing investments today”, announced Nikhil. His voice was brimming with excitement.

Nikhil and I had recently become friends.

“OK. And what are those?” I was curious.

“I have applied to this new fund offer of Select micro cap series N. The fund house is known for its stock picking skills in this category. In this new fund too, they will pick the best of the micro sized companies. In fact, the past returns of such offers has been in the 30s.”

It looks like Nikhil was sold big time on this new fund. He himself was sounding like a fund salesman. “Is this a closed ended fund, I mean is there a lock in?” I queried.

“Yes, 5 year lock-in. But that is OK. Micro caps need that much time.” This was further proof. The AMC should actually consider hiring him.

“Who told you about this fund?”

“My bank relationship manager.”

“Oh! so you bought it from the bank.”

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Systematic Transfer Plan, STP in a mutual fund- Is it worth it?

STP - SYSTEMATIC TRANSFER PLAN IN MUTUAL FUNDS

You have just received a big amount as your annual bonus. While the first temptation was to splurge it all, good sense prevails and you decide to invest 80% of it in equity mutual funds.

But you are not sure how to do it? Should it be one shot lump sum or in parts?

These days what you hear is “Market index touches all time high.” The popular media has this headline all over.

You are now forced to think if this is the right time to invest a lump sum amount in equity mutual funds.

So, you reach out to various forums, blogs, websites and friends who give this advice:

Do an STP or a Systematic Transfer Plan.

Put your money in a liquid fund and then start an STP into the equity fund for 6 to 12 months.

You feel almost convinced that is the way to go.

Hold on! Why STP at all? Does it really work?

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