Of exit loads, fund houses and distributors - 2

Yesterday...
All my troubles seemed so far away,
Now it looks as though they're here to stay,
Oh, I believe in yesterday...

(Yesterday – The Beatles)

This iconic song pretty much sums up the mood among several mutual fund distributors. For distributors habituated to attractive compensation structures and easy money, the new-look mutual fund industry has come as a rude shock. In one deft move (scrapping entry loads), the regulator changed the rules of the game. Further, the provision for uniform exit loads plugged the loophole that some would have liked to exploit.

Newspaper reports suggest that fund houses’ pleas to roll back/modify the entry load provision has been rejected by SEBI. Some fund houses have decided to compensate distributors by paying them an upfront commission in any case. Distributors on their part are tweaking their business models. Fee structures are being charted out; new value-add offerings are being introduced. Terms like ‘unbiased’, ‘independent’ and ‘research-driven’ are now liberally used in communication. Clearly, the mutual fund industry is in unchartered territory and ‘wait and watch’ is the new mantra.

Despite the gloomy picture being painted by most, it would be safe to state that the scenario isn’t as bad as it is made out to be. In fact, things could become markedly better for all the participants i.e. investors, fund houses and distributors.

Conventionally, distributors have worked on the ‘assets under management’ model i.e. more investments their investors made, higher was their pay-off. Broadly speaking, the latter came from the entry load, the trail commission and ancillary compensation/benefits provided by fund houses. While entry loads have been done away with, distributors can now demand compensation from investors directly. Also, unlike loads, this compensation is not regulated. It has been left to be mutually determined by the investor and the distributor.

Distributors argue that investors are unlikely to be willing to compensate them. There is some merit in that argument. Investors habituated to filling mutual fund forms and writing cheques for the investment amount, might resist the new arrangement initially. However, once they are convinced of the value that the distributor adds to the investment process, the resistance will subside.

The importance of quality advice and service cannot be overstated. The distributor has a vital role to play in aiding the investor achieve his financial goals. Making an investment plan, successfully managing and tracking an investment portfolio are no mean tasks. And once the distributor effectively communicates how his services can aid the investor, there’s no reason for the investor not to come on board.

Sure, distributors who fail to add value and work in the investor’s best interests might see their business dwindle. But that would only be a fair and natural consequence.

From the fund houses’ perspective, it’s an opportunity to have access to serious, long-term money. It isn’t entirely uncommon to see ill-advised investors invest monies simply to ride the rising markets. With quality advice being made available to investors, we could see the rise of a breed of informed investors who are willing to stay invested for the long-haul. Investors who don’t panic when markets experience downturns; instead they see the same as an opportunity to make investments at attractive prices. Now wouldn’t fund houses love to have such investors investing in their funds? Also, it would be fair to assume that fund houses will handsomely compensate distributors facilitating serious investors and long-term monies, for their efforts.

As for the investor, it's options galore. Some distributors will operate on the ‘transaction’ model i.e. use technology to offer investors a low-cost platform for making investments, others will bank on providing quality advice and then there will be those whose USP will be personalised service. In most cases, there will be an overlap. From the investor’s perspective, the importance of being aligned with the right distributor has never been higher. Investors will have to thoroughly evaluate the proposition offered by each distributor and select the one that best works for them.

For instance, if a distributor boasts of his research set-up, quiz him about the same, the size of his team and their experience. If a distributor claims to be independent, enquire how he ensures that his independence is not compromised with. If ‘low-cost investing’ is the platform on offer, find out how the same compares with other distributors. The onus to conduct a thorough due diligence and make an appropriate choice lies with the investor.

It won’t be surprising if investors choose to be associated with multiple distributors; for instance, the advice could be sourced from one distributor and transactions made with another.

As mentioned earlier, the mutual fund industry and its participants are in unchartered industry. However, despite what the naysayers would want you to believe, it need not be all gloomy. Remember the adage about – it’s not the cards you are dealt, but how you play them. The ‘how you play them’ part could hold the key for the mutual fund industry, going forward.

Here comes the sun,
Here comes the sun,
And I say it's all right,
Little darling, it's been a long cold lonely winter,
Little darling, it feels like years since it's been here,
Here comes the sun, here comes the sun,
And I say it's all right...

(Here comes the sun - The Beatles)

Of exit loads, fund houses and distributors - 1

The line, it is drawn, the curse, it is cast
The slow one now, will later be fast
As the present now, will later be past
The order is rapidly fading
And the first one now, will later be last
For the times, they are a changing

(The Times They Are A-Changin'- Bob Dylan)

To say that times are changing for the mutual fund industry would be stating the obvious. In all fairness, not many anticipated the same; perhaps, some are still struggling to come to terms with it. Nonetheless, change is here and it’s here to stay.

Retail investors, who have conventionally been at the receiving end of whims and fancies of fund houses and distributors alike, have become an empowered lot. Thanks to the regulator’s intervention, a level playing field has been created. Fund houses had barely recovered from the SEBI regulation abolishing entry loads, and now the regulator has taken aim at exit loads. SEBI has ruled that fund houses can no longer charge differential exit loads based on the investment amount.

First, let’s discuss what an exit load is. Simply put, it is a charge/penalty levied on an investor for exiting an investment before a stipulated period. For instance, open-ended equity funds may require investors to be invested for at least 12 months, in order to avoid paying an exit load. The rationale for the same is quite simple. Each fund has a distinct nature and it should attract monies for a commensurate time frame. Equity funds typically require investors to have a much longer investment horizon vis-a-vis say a liquid fund. Now an investor, who gets invested in an equity fund for a shorter time frame, might on exit, force the fund manager’s hand, and in the process hurt the prospects of long-term investors in the fund. Hence, the exit load which acts a deterrent for erring investors.

However, fund houses chose to tweak the exit load provision to accommodate big-ticket investors like high networth individuals (HNI) and corporates. This was done by creating differential exit loads based on the investment amount. For example, a retail investor investing Rs 5,000 was charged an exit load of 1.00% for liquidating his investment before 1 year from the date of investment; however, an HNI investing Rs 5 crores (Rs 50 million) in the same fund was outside the purview of exit loads. If you are wondering why fund houses perpetuated such disparity, the answer is pretty straightforward. A higher asset size equals higher revenue for the fund house. Typically, an HNI/corporate investor brings in a substantial amount of money i.e. he significantly contributes to the fund house’s asset size and revenues in turn. Hence, fund houses' willingness to ‘accommodate’ them.

There are some who justified differential entry and exit loads on the grounds that bulk transactions are subsidised in all walks of life. Sadly, the difference between buying grocery at a supermarket and investing in a mutual fund is lost on such individuals.

Thanks to SEBI, fund houses will now have to shed their prejudices and treat all investors alike going forward.

The reason for entry loads coming under focus at this stage is quite interesting. This phenomenon can be traced to the SEBI directive abolishing entry loads. Therein, the regulator had stated that 1.00% of the monies collected as exit loads can be utilised by fund houses to compensate distributors and meet marketing and distribution expenses.

Expectedly, fund houses saw an opportunity to aid distributors by implementing a stiffer exit load structure. The latter meant that either investors would pay higher exit loads or be required to stay invested for longer (vis-a-vis the past) to avoid paying an exit load.

Fund houses would like us to believe that the move to hike exit loads was only intended at promoting long-term investing. And perhaps it was. But then, isn’t it fair that all investors (irrespective of the investment size) be exposed to the virtues of long-term investing?

Had differential exit loads not been scrapped, the new (read stiffer) exit loads would have been borne by retail investors, since investments made by HNIs and corporates were largely outside the purview of exit loads in the earlier regime. SEBI has ensured that the exit load burden (and thereby the onus to indirectly compensate distributors) is equally borne by all investors.

Clearly, the excesses in the mutual fund industry were not lost on the regulator who has decided to champion the investor’s cause. The abolition of entry loads and differential exit loads are among several changes that will have a lasting impact on the mutual fund industry.

Any discussion on the mutual fund industry’s metamorphosis cannot be complete without deliberating on distributors. Over the years, the importance of distributors as a link between fund houses and investors, and more importantly as fund houses’ allies has grown by leaps and bounds. And now, the distribution mechanism is all set for a major overhaul as well. More on that in the concluding part of this article.

What happened to close-ended funds?

Circa 2006-07, close-ended funds were the season's flavour. Fund houses were busy convincing investors to get invested on the premise that close-ended funds furthered the cause of 'long-term' investing. Investors had a plethora of options to chose from since close-ended NFOs (new fund offers) of every conceivable kind were launched i.e. mid-cap, flexi-cap, thematic, fund of funds and tax-saving.

The genesis of close-ended funds
When equity markets hit a purple patch in 2003, fund houses capitalised on the same by launching equity fund NFOs. Most NFOs were of the open-ended variety. Fund houses were permitted to charge initial issue expenses (6% of corpus) to the fund and amortise the same over a period time. Initial issue expenses were largely used to meet marketing and distribution expenses. As a result, distributors were handsomely rewarded for their efforts in asset mobilisation.

A spanner in the works came in the form of a SEBI guideline that scrapped initial issue expenses on open-ended NFOs. Now, fund houses were required to meet NFO-related marketing and distribution expenses from the entry load; the norm was 2.25% of the sum invested. But close-ended NFOs were out of the purview of this ruling. While fund houses were permitted to charge initial issue expenses on close-ended NFOs, the trade-off was that they were prohibited from levying an entry load. The choice between initial issue expenses and entry load was a no-brainer. The result was a deluge of close-ended NFOs.

It would be unfair to paint all fund houses and close-ended NFOs with the same brush. Some close-ended NFOs did offer a truly innovative investment proposition. However, ignoring the marketing aspect would be naive.

The present scenario
It can be safely stated that close-ended funds are a forgotten breed now. Maybe, it had something to do with a subsequent guideline (January 2008), wherein SEBI decided that close-ended NFOs be treated on par with open-ended NFOs i.e. they would be permitted to charge an entry load and the provision to charge initial issue expenses was scrapped.

While close-ended funds may not feature on the priority lists of fund houses, it's a different scenario for investors. Several investors got invested in close-ended NFOs and continue to hold the same in their portfolios. Also, since then, markets have had quite a journey - an ascent to record highs, followed by a sharp downturn, and a recovery of sorts. It would be interesting to study how close-ended funds have fared so far.

The performance
Of the several close-ended funds launched in the 2006-08 period, 4 have a 3-Yr track record now. The following table shows how they have fared vis-à-vis comparable open-ended offerings from the same fund house and their respective benchmark indices.

	3-Yr (%)
Franklin India Prima	8.2
Franklin India Smaller Companies ©	6.6
CNX Midcap	16.8
HDFC Premier Multi-Cap	14.1
HDFC Long-term Equity ©	9.1
S&P CNX Nifty	15.2
ICICI Prudential Dynamic	18.2
ICICI Prudential Fusion ©	6.5
CNX Nifty Junior	18.7
Tata Tax Saving	12.6
Tata Tax Advantage 1 ©	14.3
BSE Sensex	14.6

(NAV and index data as on July 24, 2009. © indicates close-ended fund. NAV data sourced from www.amfiindia.com. Index data sourced from www.bseindia.com and www.nseindia.com. All data in CAGR terms)

As can be seen in the table above, close-ended funds have failed to match their benchmark indices over the 3-Yr period. Furthermore, with the exception of one fund, others have failed to match comparable open-ended funds from the same fund house. Even a cursory glance at performance of other close-ended funds (ones that have been in existence for less than 3-Yrs) will reveal that largely their performance is nothing to write home about.

It ain't over, till it's over
Critics might argue that the aforementioned funds need not be a representative sample of the entire close-ended funds category. Fair enough. But few would dispute that close-ended funds have failed to impress so far.

Fund houses are likely to justify the mediocre showing posted by close-ended funds on the grounds that these are early days. Given that most close-ended funds have a 5-Yr tenure, passing any judgement at this stage would be premature. Also, several funds have a provision for conversion into open-ended funds on maturity. Hence, should they fail to deliver in their close-ended avtaar, investors can continue to stay invested and exit the same at a more opportune time. While there might be some merit in the former argument (early days for funds), the latter certainly doesn't hold good.

Here's why - investments in close-ended funds were made on the premise that they would enable fund managers to make long-term investment decisions i.e. fund managers would not be weighed down by factors like redemption pressure and short-term market occurrences, that typically plague open-ended funds. When investors agreed to forsake liquidity (make a 5-Yr commitment) and bear initial issue expenses, the trade-off should have been a superlative performance. The least investors would expect is for close-ended funds to deliver a better showing than open-ended funds. And should close-ended funds fail to deliver, investors have every right to feel aggrieved.

What investors must do
Investors would do well to appreciate that not every promising proposition translates into a sound investment avenue. On paper, a close-ended fund with a defined maturity horizon and corpus sounds like an interesting idea; however, with the benefit of hindsight, it can be safely concluded that not every close-ended fund will live up to the promise. This underscores the importance of seeking diversification and a track record while making investment decisions.

Also, investors must keep track of their close-ended fund investments. Be patient and give them adequate time to prove themselves. Despite this, if they fail to deliver, don't hesitate to exit them after taking into account factors like the exit load. Perhaps an alternative fund with a similar investment proposition might be a better bet.

Investment tips from 'The Godfather'

For film buffs and critics alike, The Godfather pretty much embodies what celluloid magic is all about. Even 37 years after its release, the movie continues to capture the collective imagination of audiences across the world. Its characters, lines and performances are a part of folklore. Debates and discussions on what makes the movie tick continue till date. The film's enduring appeal to generation after generation only reaffirms its status as a true classic.

But there's a lesser-known aspect to The Godfather. Apart from being a source of inspiration to aspiring actors and filmmakers, the film has a lot to offer to investors as well. Following are 3 investment tips from The Godfather:

1. "Where does it say that you can't kill a cop?"

When the Corleone family is under attack, Michael Corleone (Al Pacino) comes up with a seemingly outlandish plan to eliminate his family's enemies. And that includes killing a corrupt police officer. Despite being scoffed at by his associates, Michael rationalises his plan by suggesting that they feed the media with stories of the police officer's corrupt practices and his links with the mob, and thereby defame him. Essentially, Michael shows the willingness to think out-of-the-box and take risk, without being irrational.

Likewise, the willingness to be unconventional and take on risk is vital for successful investing. Often, investors are guilty of sticking to certain avenues simply because they have always done so. For example, it is not uncommon to find investors who refuse to venture beyond bank fixed deposits and small savings schemes; the only explanation for their choice being, we have always invested in these avenues. By shutting the door on other options, investors might deprive themselves of the opportunity to meet their investment objectives. Of course, this should not be read as a recommendation to throw caution to the winds and invest in every untested investment avenue on offer.

All investors need to do is, be open to the idea of investing in avenues that offer a suitable investment proposition and be willing to take on acceptable levels of risk. For instance, a 25-Yr old investor who is saving for his retirement 35 years hence, can't hold a portfolio comprised of only fixed deposits and bonds; despite the higher risk, equities and mutual funds must find place therein. Remember, risk isn't bad; investing without being aware of it or failing to properly assess it, is what gives rise to thorny situations.

2. "It's not personal. It's strictly business."

This recurring line from the film has been used to great effect on each occasion. Every character who quotes this legendary line tries to impress on others that a given act or plan of action should be seen as a business decision. In other words, it has nothing to do with his personal feelings. Hence, the need to view the act in a dispassionate manner. The 'not personal' rationale holds true for investments as well.

At times, investors have a tendency to get 'attached' to their investments. This is especially true of market-linked avenues like stocks and mutual funds that have had a successful run. The trouble starts when the avenue is no longer equipped to perform as it has in the past. Similarly, there can be a situation wherein an investor gets invested in an avenue that fails to deliver. In both the situations, investors might be tempted to hold on to the investment; while in the former, it's the 'attachment' at work, in the latter, it's to get even.

Such an approach to investing is certainly unwarranted. An investment is simply a means to achieve a goal i.e. the investment objective. If a thorough evaluation suggests that the investment is no longer equipped to play the part that it was supposed to, investors must salvage the situation by getting rid of the same at an opportune price and time.

3. "Tom Hagen is no longer consiglieri."

When Michael decides to expand the family's operations, he decides to make certain changes. The significant one being that his brother/long-time associate, Tom Hagen (Robert Duvall) is sacked from the consiglieri's (advisor) post. His explanation for this rather drastic move is quite simple - Tom is not a not a wartime consiglieri and that things could get rough. Simply put, Michael prefers someone adept at strong-arm tactics over his brother, since the situation demands it.

An investor should routinely evaluate his relationship with the investment advisor/financial planner. The onus to ensure that investments are made and managed in the best interests of the investor, lies with the advisor. In effect, the investment advisor's integrity and competence are consistently tested.

Let's consider the emerging scenario in the mutual fund industry. With entry loads being scrapped, investors will be required to individually compensate advisors for services rendered. There can be a situation wherein an investor believes that his advisor isn't able to justify the fees demanded or perhaps his service standards aren't up to the mark. Should such a situation arise, investors shouldn't hesitate to terminate their existing relationship. Investing is serious business and there should be no room for incompetence or a slack attitude on the advisor's part.

Finally, be wary when someone "makes you an offer, you can't refuse". In The Godfather, this phrase refers to a veiled threat; refusal leads to dire consequences. In the world of investments, one can draw a parallel to investment propositions that claim to offer a win-win proposition. For instance, an investment that purports to expose investors to low risk, yet promises to deliver high returns. Remember, if an investment proposition sounds too good to be true, there's more than a fair chance that it is.

HDFC Top 200: An underrated achiever

Did you know that even investments can be exciting? Typically, asset classes or investment avenues that have hit a purple patch make the grade as exciting ones. Especially, the ones that have gone from obscurity to prominence in a short time span. They are written about in the media and instantly recommended by investment advisors. For instance, a fund that has delivered a trail-blazing performance and is perched at the top of the rankings. Even providers of financial services enjoy their fifteen minutes of fame; say a fund house that holds the largest asset size in the industry. Don't get me wrong. There is nothing wrong with an asset class, an investment avenue or a financial service provider being lauded and discussed, because it has delivered. In fact, it's only to be expected.

The trouble starts when one reads too much into the 'exciting' bit and makes investment decisions based solely on the same. Also, since most of the fanfare can be attributed to a recent showing, it is difficult to distinguish a 'flash in the pan' from a 'sustainable' performance. And for serious investors, the latter is certainly a more important evaluation parameter.

Then there are funds which don't qualify as exciting ones. Make no mistake, that's not the same as being non-performers. On the contrary, these can be funds that go about playing their part to perfection, but in an understated manner. They often deliver with enviable levels of consistency. Their performance over longer time periods and across parameters can be impressive. Despite this, there is never a frenzy surrounding them. It is not uncommon for such funds to be labelled as 'boring'.

Sadly, most investors fail to realise that in the context of investing, boring can be good. This is because, boring translates into predictability. And predictability means fewer unpleasant surprises. If you are building an investment portfolio to achieve certain objectives, boring funds of the aforementioned variety should account for a lion's share of the portfolio. The fact that a fund isn't in the limelight or isn't perceived as exciting is no reflection on its prowess. A competent performer stays the same irrespective of the attention it garners. HDFC Top 200 Fund (HT2F) is one fund that falls in the category of underrated achievers.

Originally an offering from Zurich India Mutual Fund, the fund became a part of HDFC Mutual Fund subsequent to the former's takeover in 2003. A diversified equity fund, HT2F's investment proposition is quite simple. It largely invests in stocks of companies featuring in the BSE 200 index. An interesting aspect of the fund is that it combines the active and passive styles of investing. It holds around 60% of its portfolio in line with the BSE 200 index. The fund has also benefited from the presence of its fund manager, Prashant Jain (Executive Director & CIO-HDFC Mutual Fund). Incidentally, Prashant Jain was earlier associated with Zurich India Mutual Fund. The fund's long-standing association with the fund manager has served it well.

Now for the performance. For a fund that has been in existence for well over a decade (inception in 1996), HT2F's track record is impressive to say the least. As on July 14, 2009, over the 3-Yr and 5-Yr periods, it had delivered 17.5% CAGR and 31.2% CAGR respectively; the corresponding figures for BSE 200 were 9.9% CAGR and 21.8% CAGR. Over the last 12 months, the fund posted a growth of 22.3% vis-à-vis just 3.1% for its benchmark. HT2F's NAV rose by 21.6% CAGR over a 10-Yr period as compared to 13.8% for BSE 200. And that is no mean achievement!

Any analyst worth his salt will agree that a fund's mettle is truly tested during a downturn. In recent times, after peaking in January 2008, domestic stock markets went into a downward spiral that lasted until March 2009. Over this (approximately 14-Mth) period, between it highest and lowest points, the BSE 200 shed 64.9% on an absolute basis; HT2F scored over its benchmark by losing 54.8%. In effect, the fund has fared better than its benchmark in both the upturn and downturn. HT2F is no laggard when it comes to competing with peers. Its showing vis-à-vis comparable peers (funds that predominantly invest in the large cap segment) is equally noteworthy.

Despite this, there is no perceptible buzz around the fund. No one is raving about its performance. This is hard to explain. For some obscure reason, HT2F lacks the 'X' (read exciting) factor that is much needed to draw attention.

What investors must do
For one, it would help if you don't let the hype or 'lack of it' affect your investment decisions. Always remember, investing need not be exciting; conversely, as mentioned earlier, boring can be good. You must check with your investment advisor/financial planner if a competent and proven, yet seemingly humdrum fund fits in your scheme of things. And if it does, by all means get invested.

(NAV data sourced from www.hdfcfund.com; data for BSE 200 sourced from www.bseindia.com)

Union Budget 2009-10: More 'yeas' than 'nays'!

Stock markets have given the budget a thumbs down; on last count, the BSE Sensex had shed nearly 800 points and was southbound. Maybe it was something to do with the fiscal deficit forecast (6.8% of GDP) or possibly the markets expected far more concrete announcements in areas like disinvestment. Perhaps, the expectations of a 'big-bang' budget were too much to live up to. However, individual tax payers are likely to have a different view. In all fairness, the budget has enough to elicit a nod of approval from them.

Here are some of the major provisions:

1. Exemption limit for personal income tax hiked
Lower taxes are universally welcomed with cheers, and this move will be received equally warmly. The exemption limit for personal income tax has been hiked by Rs 10,000 i.e. from Rs 150,000 to Rs 160,000. For women tax payers, the new threshold limit is Rs 1,90,000 vis-à-vis the erstwhile limit of Rs 1,80,000. Senior citizens stand to benefit the most. With an increase of Rs 15,000, the exemption limit has risen from Rs 2,25,000 to Rs 2,40,000.

2. Surcharge on personal income tax abolished
The Finance Minister (FM) announced his intent to phase out surcharge on various direct taxes. To begin with, he has eliminated the 10% surcharge presently applicable on personal income tax. Another move that will help reduce the tax outlay, much to the delight of assessees

3. Fringe Benefit Tax abolished
This one is meant for corporates and salaried individuals. Ever since its introduction in budget 2005-06, the Fringe Benefit Tax has been the subject of much debate and discussion. Industry captains have in unison debunked the same. With the tax being abolished, the FM has acknowledged popular sentiment.

4. Section 80DD deduction limit hiked
The deduction limit for Section 80DD, which covers expenses incurred for maintenance (including medical treatment), of a dependent who is a person with severe disability has been raised from Rs 75,000 (at present) to Rs 100,000.

5. Donations to electoral trusts
The FM also has something in store for the politically inclined. He has proposed that donations to electoral trusts be eligible for a 100% deduction in the donor's computation of income. For this purpose, electoral trusts will be trusts that are set up as pass-through vehicles for routing the donations to political parties, and are approved by CBDT.

The sleeper benefit
It was widely speculated that the small savings segment would undergo a rationalisation i.e. interest rates on popular avenues like the PPF and NSC would be reduced. None of that transpired. In fact, the small savings segment has been left untouched. In other words, investors can continue to enjoy assured returns coupled with attractive interest rates and tax sops. That is a big positive. Notwithstanding the softer interest rate regime, the small savings segment continues to be a haven for risk-averse investors.

The dampener
Some might argue that not much was done for investors in the New Pension System (NPS); the FM stated that the NPS would continue to be subject to the E-E-T method of taxation. Popular opinion suggested that NPS would be brought within the gamut of Section 80C; also, speculation was rife that the annuity/maturity sum received by investors would be made tax-free. However, one must appreciate that these are early days for the NPS. Also, tax benefits spelt out for the NPS trust should be seen as indicators of the importance being accorded to the scheme. Going forward, it shouldn't be surprising, if the NPS is subject to a far more benevolent taxation method. In any case, the FM did his bit for NPS by allowing self-employed individuals to participate in the scheme and avail tax benefits thereof.

As mentioned earlier, those who expected a 'big-bang' budget are likely to be disappointed. However, while evaluating the budget, it would only be fair to take into account the challenging economic environment and circumstances that we are faced with. Given the constraints, it can be safely stated that the budget has more 'yeas' than 'nays' for individuals.

Will small savings schemes be rationalised?

Lately, several business dailies have been carrying reports suggesting that the rates offered by schemes from the small savings segment are up for review. Apparently, banks that have been nudged by the Reserve Bank of India (RBI) to cut lending rates have demanded a rationalisation in small savings schemes; the rationale being that attractive rates on the same prevent banks from lowering deposit rates. This in turn impacts their ability to reduce lending rates. A recently-appointed RBI deputy governor echoed similar views.

What are small savings schemes?
Small savings schemes are colloquially referred to as post office schemes. Broadly speaking, schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Post Office Monthly Income Scheme (POMIS) and the Senior Citizens Savings Scheme (SCSS), among others form the small savings segment. These schemes are backed by a sovereign guarantee, making them risk-free investments. Also, certain schemes offer tax benefits under Section 80C of the Income Tax Act.

The rationalisation saga
Reports of a rationalisation in the small savings segment have cropped up on several occasions over the past few years. Several panels and committees mandated by the central bank have recommended a more 'rational' structure. However, barring some cosmetic changes, the small savings segment has remained largely unchanged.

Incidentally, provisional figures (sourced from RBI's website) reveal that in 2008-09, inflows in the small savings segment grew after falling successively in the two previous financial years. It's not difficult to understand the reason for this phenomenon. The aforementioned time-frame coincided with a sharp downturn in equity markets; consequently investors smarting from heavy losses in equity and mutual fund investments chose to opt for 'safe' avenues. And investors' preference for small savings schemes in a time of adversity only bears testimony to their popularity.

Will the FM bite the bullet?
Come July 3, 2009 when the Union Budget is presented, will the FM announce a reduction in rates offered by small savings schemes? Your guess is as good as mine. However doing so would certainly qualify as a bona fide unpopular step. For instance let's consider a segment of investors like senior citizens and retirees who are largely dependent on income generated from investments. For such investors, POMIS and SCSS are 'bread and butter' investment avenues, given their need for safety of capital and assured income. Any reduction in interest rates on these avenues is unlikely to go down well with investors. Also, let's not forget that speculation is rife, that we are in store for a popular budget.

The 'middle of the road' approach
A more likely scenario seems one wherein interest rates on certain schemes will be altered, instead of 'across-the-board' changes. For instance, the PPF which runs over a 15-Yr period offers assured returns, however the interest rate (8% pa at present) is subject to change. Post Office Time Deposits (POTDs) offer an investment proposition similar to the one offered by bank fixed deposits. A reduction in interest rates on such schemes is unlikely to raise many eyebrows.

While reducing interest rates would be the direct approach to rationalisation, there are other ways as well. These would entail reducing the attractiveness of the schemes. For example, Section 80C benefits can be removed from some of the schemes. The investment tenure/lock-in can be enhanced, thereby forcing investors to stay invested for longer. Clearly, there's more than one way to rationalise the small savings segment.

What investors must do
For investors who were planning to invest in small savings schemes, now wouldn't be a bad time to get invested. This is especially true for avenues like NSC or POTDs wherein the rate of interest is locked at the time investment. This will ensure that the investments are immune to any subsequent change.

Without doubt, the small savings segment looks set to undergo an overhaul; as regards the magnitude of the same, only time will tell. However, few would dispute the role that small savings schemes can play, in terms of being the risk-free debt component in the portfolio. As always, investors would do well to judiciously select schemes that suit them the best.

Much ado about 'no entry load'

All right. So, the Securities and Exchange Board of India (SEBI) has decided that mutual funds will no longer be permitted to charge an entry load. And all hell has broken loose! Newspapers are carrying articles with comments from 'experts' and 'senior officials' at fund houses running down the move; a lot of emphasis is being laid on how this step will hurt the mutual fund industry. But is that correct? Can a step that is evidently pro-investor be detrimental to the industry?

Let's take a look at what SEBI has proposed. Following is an extract from a press release posted on SEBI's website:

"There shall be no entry load for the schemes, existing or new, of a Mutual Fund. The upfront commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors."

The guideline suggests that the practice of fund houses deducting an entry load (from the sum invested) and paying the same to distributors (investment agents/advisors) as upfront commission will be discontinued. Instead, the investor will have to compensate the distributor for the services rendered. Also, distributors shall be obliged to reveal the total commission they earn from various mutual funds.

So let's see, what's causing all the hoopla? Have distributors been deprived of their livelihood? Does the regulation suggest that henceforth distributors will have to treat selling mutual funds as a philanthropic activity? No. So why all the fuss? Here's why. Thanks to this step, distributors have been made accountable. They can no longer operate with a "the more I sell, the more I will earn" mindset. With an assured income of 2.25% or thereabouts from the entry load, aspects like quality of advice and service were rarely granted any importance. However, that modus operandi is now history. Several distributors will have to kiss a tearful goodbye to the 'easy money' route. And this is where all the agony stems from!

Any distributor who is confident about the quality of services he offers, should welcome this step. Nowhere does the guideline suggest how much income the distributor can demand from the investor. So if the distributor provides quality advice that is consistently in the investor's best interests and backs it with top-notch service, he could potentially demand more than the 2.25% that was available to him via the erstwhile entry load. Hardly a reason to complain!

Now for the second part of the guideline - disclosing all commission earnings. Again, distributors only have themselves to blame. Having built a reputation for selling mutual funds that offer them the highest commission, mis-selling continues to be common practice in the mutual fund industry. SEBI is simply trying to incorporate greater transparency in the investor-distributor association. Distributors who do not engage in any malpractice have no reason to fear. They should be able to justify why they are recommending a given fund vis-à-vis another.

Some fund houses are apparently aggrieved since they believe that the mutual fund industry will suffer, since distributors will gravitate towards insurance products offering better commission. Hence fund houses will end up with lesser assets to manage. Of course, a smaller asset size translates into lesser income for the fund house.

Here's a counterargument - if the mutual funds on offer are attractive enough and can aid the investor in achieving his investment goals, he will demand them and thereby create a demand. And the onus to ensure that funds are attractive lies primarily with the fund house. Also, if a fund house feels that distributors deserve to be better compensated, it is free to cough up additional benefits out of its own pockets. Remember the regulator only stipulates how much expenses can be charged to the fund (i.e. borne by the investor). Any fund house/AMC which believes that distributors are being short-changed, should feel free to reward them out of its own coffers.

Time and again, fund houses have failed to act in the best interests of the investor. Their partisan attitude towards distributors and indifference towards investors has been disappointing to say the least. Let's hope this time around better sense prevails and they don't create any roadblocks in the implementation of this directive.

As for investors, they couldn't ask for more. First, they were given the opportunity to invest directly with the fund house, thereby bypassing the distributor and avoid paying an entry load. Now with the guideline to scrap the entry load, they can negotiate with the distributor and arrive at a fair price for the latter's services. The onus to make the most of this opportunity lies with investors.

Kudos to SEBI for taking a stand for investors!

Distributors and fund houses - keep your chin up. This round goes to investors!

Do you have a contingency reserve in place?

Does your investment advisor/financial planner recommend that you have a contingency reserve (or fund) in place at all times? Also, does he help you evaluate the adequacy of the same at regular time intervals? If not, then there might be a case for re-evaluating your association with the investment advisor/financial planner.

Simply put, maintaining a contingency reserve amounts to saving for a rainy day. Alongside creating portfolios to meet goals like retirement and children's education, having a contingency reserve in place is equally important. As the name suggests, this is a pool of money set aside to provide for unforeseen events. While the concept of maintaining a dedicated reserve for the aforementioned purpose isn't exactly a recent phenomenon, its need has certainly become more pronounced now, thanks to the layoffs, pay cuts and enterprises shutting shop.

A contingency reserve ensures that you can go about with your day-to-day activities even in the event of an unexpected (and unpleasant) situation arising. In effect, it ensures that you don't have to compromise on your lifestyle, even in difficult times.

How much money will I need
Like investing, creating a contingency reserve is also a personalised activity i.e. it has to be tailor-made for you. What you need to do is determine how much money you need to meet all your expenses on say a monthly basis. This will include making an estimate of all expenses i.e. grocery bills, utility bills (electricity, telephone, petrol, rent and EMI), outlay towards children's tuition fees, among others. Activities like dinners in restaurants, weekend getaways, movies and shopping sprees at malls should also be provided for. You might also want to incorporate a certain amount for medical emergencies, given how expensive hospitalisation and medical treatment can be (remember, medical insurance doesn't cover all ailments). While theoretically the list can be endless, you need to arrive at one that is right for you. It should comprehensively cover all the areas that you would need to spend on in the normal course, and thereby ensure that your lifestyle is not dented.

The next step is to determine the period for which you would like to make a provision. Again, this choice needs to be made, based on what works for you. Suppose you arrive at Rs X as the sum that you need to spend every month; furthermore, you believe that 6 months is the period for which you would like to have a 'safety net'. In that case, you should have a contingency reserve of Rs 6X.

How to create a contingency reserve
It's possible that you may not have the requisite sum (Rs 6X) available at your disposal, to begin with. That's fine. Set aside what you have and keep adding to it in a disciplined manner until the target is achieved. It is important that the contingency reserve be invested in appropriate avenues. Safety and liquidity are two factors that must be accorded high priority. Hence, the sum can be stored in a separate (more on this later) savings bank account; a portion of the reserve can even be held in cash. The intention is ensure that the earmarked funds can be accessed at a short notice and also, that they are not exposed to any risk.

The contingency reserve is sacrosanct
It is vital that you respect the sacred nature of the contingency reserve. In some cases, the sum being set aside can be quite substantial. There will be temptations to dip into the reserve and use the monies for purposes, other than the intended ones. For instance, if equity markets are surging, a substantial sum of money lying unutilised in a savings bank account may stick out like a sore thumb; there will be temptation to invest those monies in the markets. When it's the festive season, attractive discounts are commonplace. You might be tempted to use the reserve to capitalise on the same. Don't succumb to such temptations. It would certainly help to hold the contingency funds in a separate bank account. Thus the likelihood of the funds getting used up for extraneous purposes will be reduced.

Finally, at regular time intervals, it is important that you review if the contingency reserve is adequate. An upgrade in your lifestyle could mean that the contingency reserve has become inadequate. In such a scenario, replenishing the same at the earliest should be given priority.

In a time of crisis, not having a contingency reserve could force you to either compromise on your lifestyle or divert monies from other needs. In either case, it would be an undesirable scenario. Several individuals are vulnerable to the "it will never happen to me, so why provide for it" syndrome. While it would be nice to be never faced with a crisis, banking on the same might amount to wishful thinking. Remember, the rationale for a contingency reserve can be traced to the time-tested tenet of - prevention being better than cure.

The Lords of Flatbush: A small classic

The black & white image on the blog has evoked a fair bit of curiosity. I have had several queries on what it stands for. Here goes - it's an image from a 1974 movie called "The Lords of Flatbush" - TLF. A typical low-budget independent flick, over the years, it has acquired a cult status. Also, it happens to be one of my all-time favourites.

For most, TLF's claim to fame is that it boasts of several major stars in their pre-stardom days. Of the leading men, Perry King subsequently made a name for himself as a television star starring in the series "Riptide" and several made-for-TV films. Henry Winkler acquired iconic status playing "Fonzie" in "Happy Days". Finally, a lesser-known actor called Sylvester Stallone went on to become one of the biggest movie stars portraying legendary characters like "Rocky" and "Rambo".

But there's much more to TLF than its star cast. Set in the 1950s, it's a heartfelt coming of age tale. The central characters are a bunch of leather-clad, teen-aged delinquents who are resisting growing up. They identify themselves as members of a 'social athletic club' called the Lords of Flatbush. And their activities include indulging in boorish behaviour, picking up fights, chasing girls, stealing cars and playing pool. In fact, the opening credits unambiguously establish the credentials of the Lords.

As is often the case with low-budget flicks, TLF suffers from some serious technical flaws. Oddly, they add to the film's gritty and real theme. And that is one of TLF's fortes. Unlike "Grease" (the far more popular 1950s movie that hit theatres a few years later), which is about as real as Santa Claus, TLF offers an earthy look at life in the 1950s, despite the leather jackets, pompadour hair, vintage cars and bikes, drive-in, soda store et al. It's about believable characters in life-like situations.

While the performances are top-notch, the well-etched characters and perfect casting deserve to be applauded as well. Perry King enjoys maximum screen time; armed with a cool bike, he is the Casanova with a roving eye. Sylvester Stallone plays the archetypal tough guy with a heart of gold, with a lot of gusto. Henry Winkler has the brains in the gang and is clearly wasting his time. But then breaking ranks and doing something worthwhile wouldn't be Lord-like behaviour. Finally, the pint-sized Paul Mace whose only identity is that he is a Lord, and he couldn't care less. Each actor has his moments. However, the best scenes are undoubtedly the ones wherein the Lords are together doing what they do best - having a blast!

TLF's brilliant and apt soundtrack merits a mention. Another interesting aspect of the film is that it lacks a well-developed story line. Instead, what you have are various incidents in the life and times of the protagonists; each one offering an insight into the protagonist's character. One grouse I have with TLF is its runtime. At about 86 minutes, it seems a trifle too short.

While TLF-enthusiasts have lapped up the film on DVD and video over the years, they were in store for a bonus recently. TLF's co-director Stephen Verona authored a book titled "The making of The Lords of Flatbush". It offers some interesting insights, trivia and a behind-the-scenes look at the cult film. For instance, Richard Gere was set to play one of the Lords and his run-ins with Stallone were largely responsible for his exit. Also, Bette Midler was supposed to be a cast in TLF.

Anyone who has ever been a part of a closely-knit gang will easily identify with TLF and the nostalgic feel that it strongly evokes. Without doubt, TLF qualifies as a must-watch!

Look who's talking!

Mutual funds are back with a bang! Pick up any newspaper and you are bound to come across a mutual fund related write-up or advertisement. Given the surge in equity markets, the performance of mutual funds has started looking up. And fund houses are sparing no effort (explicit or implicit) to spread the gospel of mutual funds. There are articles eulogising the impressive showing delivered by mutual funds in the recent past; also, the fact that the mutual fund industry now holds a record assets under management (AUM) size has been well-documented. Fund managers are busy giving out interviews highlighting how mutual funds will hold investors in good stead over the long-term. Dividends are being declared in a hurry by several funds to prove their prowess. Finally, some new fund offers (NFOs) have already been launched (more on this later in the article) and several others are on the way. All in all, it can be safely stated that mutual funds are back with a bang!

Circa October 2008
Not too long ago (October 2008 to be precise), the scenario was radically different. Equity funds had been hit hard by the sharp decline in equity markets; even 3-Yr performance numbers were in negative territory. Debt offerings like fixed maturity plans (FMPs) and liquid/liquid plus funds had come under the scanner on account of the liquidity crisis; questions were being raised about the quality of investments made by several funds. Simply put, mutual funds had become everyone's favourite 'whipping boys'. While all the criticism may not have been justified, some of it certainly was.

Interestingly, the response of fund houses to the demanding situation was rather curious. Most fund houses went into a 'silent' mode and simply chose not to react. When relationship managers were contacted for information about their funds, the standard response was, "everything is fine; there is nothing to worry about". Requests for one-on-one interviews with fund managers were either instantly turned down on the grounds that the fund manager was busy or stalled with the excuse - "we'll get back to you on this one". While some fund houses/fund managers were willing to go on record about the nature and quality of their fund portfolios, they were strictly in a minority.

Odd isn't it. In a time of crisis, fund houses, instead of communicating with investors to assuage their concerns, chose to go into hiding. And now, when the going is good, fund houses are acting like 10-yr old over-energetic blabbermouths who can't keep mum. That tells you something about fund houses, doesn't it?

As for the NFOs, at any sign of rising markets and a revival in investor interest, they make a comeback. Already, we have had a round of the 'target return' NFOs. Simply put, these are funds wherein there is an inbuilt clause for booking profits when a certain return (as specified by the investor) is clocked. In most cases, the profits are booked and invested in a debt fund from the same fund house. For investors who were ruing the fact that they didn't book profits when markets peaked in January 2008, only to see the value of their investments plummet subsequently, these NFOs struck a chord.

Here's a thought - is it prudent for mutual funds to book profits for investors or is that something investors should be independently dealing with after taking into account factors like their individual financial goals, the investment scenario and the performance of their investment portfolio as a whole. Also, let's not forget that regularly 'booking profits' for every individual investor at a fund level, just might force the fund manager to prematurely sell some quality stocks from his portfolio. This in turn, could be detrimental to the long-term interests of the fund.

But given the receptiveness shown by investors, fund houses were only more than happy to launch a slew of 'target return' funds. Some introduced the facility to book profits in their existing funds. Of course, the fact that even after booking profits, (on account of transfer of profits booked into a debt fund) there is no fall in the AUM of the fund house doesn't hurt the latter's cause. Rest assured, with the markets moving northwards at a brisk pace, it's only a matter of time before a number of NFOs hit the markets.

What investors must do
Given that fund houses have failed to distinguish themselves, it is fair to state that investors would do well not to blindly follow them while making investment decisions. Going forward, fund houses will try to entice investors by making them believe that all is hunky dory and now is the time to get invested lock, stock and barrel. Can't blame them, it's the AUM that translates into income for them. Hence, higher the AUM i.e. more investments made by investors, the better it is for fund houses.

On the other hand, investors need to be a lot more pragmatic. They should not get carried away by all the hype being whipped up by fund houses. Instead, they should use the downturn and despondency that they witnessed and experienced not too long ago, to make a fair evaluation of their risk-taking ability. This can help them determine what portion of the investment portfolio should be allocated to mutual funds. While no one would dispute the ability of well-managed mutual funds to add value to investors' portfolios, there is certainly a need to guard against making investments in a reckless manner.

Do your mutual funds stand the test of character?

'In times of adversity, true character is revealed' - that's an adage relevant not only to humans, but also investment avenues like mutual funds. Any analyst worth his salt will vouch for the fact that in rising markets, it is hard to distinguish the men (proven and invest-worthy funds) from the boys (also-rans). Buoyed by conducive market conditions, even mediocre funds can deliver an extraordinary performance. Often the mantra is - take on above-average risk and ride the wave.

But when the tide turns (as it has over the past 12-14 months), a fund's mettle is truly tested. The last few months have been particularly interesting. With the markets hovering around the 8,000-point mark, despondency had all but set in. And then came an uptick that took everyone by surprise. Speculation regarding 'the worst being over' and 'the commencement of a recovery' was doing the rounds. But alas, the victory celebrations seem to have been interrupted by the impending election results and the possibility of another hung parliament.

If you are an investor, it can be safely stated that these aren't happy times. The uncertainty is certainly not helping. But all is not lost. On the contrary, this is an opportune time to evaluate your mutual fund portfolio.

The evaluation needs to go beyond the obvious i.e. how a given fund fared on the downside. Sure, the latter is important and will play a significant part in the process. However, an equally vital evaluation will pertain to identifying the fund's 'true character'.

Each fund has a professed investment style; in mutual fund parlance, this is referred to as the fund's positioning. Say Fund A in your portfolio may be positioned as a mid cap fund. Now is the time to determine if the fund manager has walked the line and adhered to the stated investment style i.e. irrespective of the market conditions, does the fund continue to be invested in mid cap stocks in line with its investment objective/positioning.

There will be a case for raising a red flag if you come across the professed mid cap fund making substantial investments in the large cap segment, simply because the latter has been less impacted during the downturn.

Then there are funds which state that they will be fully invested at all times i.e. they will refrain from taking cash calls. This investment style often flows from the philosophy that fund houses are custodians of investors' monies for investment purpose as opposed to holding cash (making investments in current assets).

The red flag scenario: A fund house which believes in holding portfolios that are fully invested at all times, performs a volte-face and holds a substantial portion of its portfolios in cash to minimise the brunt of falling markets.

Hybrids i.e. balanced funds and monthly income plans (MIPs) are often referred to as tools of asset allocation, on account of investments in both equities and debt. Theoretically, by diversifying across asset classes, hybrids are better equipped to safeguard the investor's interest when a given asset class hits a rough patch. When equity markets run into rough weather, a balanced fund can score over a conventional equity fund on account of its debt holdings.

Now is the time to find out if the hybrids in your portfolio are playing their part as required. Failing to do so (say a balanced fund that insists on being largely invested in equities akin to a conventional equity fund) defeats the purpose of investing in a hybrid.

Why it is vital to conduct the aforementioned exercise
Wondering why it is vital to conduct the aforementioned exercise (incidentally, the above list is not a comprehensive one; these are some among several tests that can reveal a fund's true character). Another question could be that some of the 'red flag' scenarios were aimed at protecting investors' interests. Hence the same should not be held against the fund house. Here's why this argument doesn't hold good.

A fund is not an 'end', it is simply a 'means' to achieve an end. In other words, the fund should find place in a portfolio because it can play a specific part. And the part played by the fund is inextricably linked to its nature/unique characteristics. Should the fund deviate from its defined character, there's a fair chance that the portfolio might fail to deliver on expected lines and in turn, the investor may fail to achieve his financial goals.

What you must do
As an investor, you must ensure that you are invested in funds that have a defined character and a reputation of not having deviated from the same. Furthermore, once the investments are made, a review of the funds' performance (including adherence to their stated investment style) must be made. The financial planner/mutual fund advisor will have a critical role to play in the review process; expectedly, the same must be conducted on an ongoing basis over a period of time. The advisor will be equipped to distinguish minor aberrations from significant deviations. And given the challenging investment scenario we are faced with at present, the resolve of even the most resolute fund houses and fund managers is likely to be tested. Hence, the importance of conducting a thorough review now!

5 investment tips from Batman

Surprised to read about Batman and investments in the same sentence? Don't be. Not many would associate a comic book character with investing. However, there's a lot that investors can learn from the Dark Knight and his modus operandi.

Here are 5 investment tips from Batman.

1. No super powers, but he's still a super hero!

Interesting, isn't it, Batman has no super powers. Unlike his fellow caped crusaders, he can't fly; neither can he spin a web and swing across buildings. In effect, he is a super hero with no super powers. All he relies on are his physical and mental skills like a mere mortal. And yet, he emerges a winner every time.

Similarly, investors must appreciate that they don't need to be 'investment gurus' to achieve their financial goals. All they need to do is, invest in a disciplined manner and keep things simple at all times. For instance, investors should be unambiguously aware of their investment objectives i.e. what they want to achieve via their investments. Also, they must understand the characteristics of the investment avenues deployed i.e. the pros and cons. Having a contingency plan i.e. a 'plan B' is vital as well. There's no reason investors can't succeed, if they stick to the basics of investing and adopt a diligent approach.

2. The omnipresent Batsuit and Batmobile, among other gadgets

Ever noticed how Batman uses a plethora of gadgets. But primary among them are the Batsuit (with the utility belt) and the Batmobile. No matter what the situation, the aforementioned always have a role to play. While other gadgets keep appearing in an intermittent manner, these are the mainstays of his arsenal.

Investors must ensure that they have a solid core portfolio in place. It can be comprised of various avenues like mutual funds that have stood the test of time, bonds/instruments backed by a sovereign guarantee. Gold must find place in every portfolio from an asset allocation perspective. Although not in the domain of investments, the importance of being adequately insured cannot be overstated. A term plan is an ideal way to acquire a substantial insurance cover at a low cost. Opting for medical insurance is pertinent too. Once a solid core portfolio has been built, other avenues can be included in the portfolio, depending their suitability for the investor.

3. Robin and Alfred to the rescue …

Despite the fact that he's a bonafide super hero, Batman is never short on allies. For example, for advice, he turns to his mentor Alfred, who also doubles up as his butler. And, when its time for action, Batman's protégé Robin isn't far away. Commissioner Gordon and Lucius Fox have a part to play in Batman's crime-fighting escapades too.

For investors, the most important ally is the investment advisor/financial planner. This individual should act as the bridge between investors and their financial goals. He is required to have a fair degree of expertise as far as investments go and must consistently work in the investor's interests. Investors on their part must ensure that they are always associated with a competent and committed investment advisor.

4. Batman preys at night

Unlike other super heroes who operate in broad daylight, Batman preys at night. In fact, he uses the cloak of darkness to his advantage. In other words, he steers clear of the herd mentality and adopts an approach that is suited to him. That makes Batman, a bit of a contrarian vis-à-vis his peers.

It is not uncommon for investors to get swayed by trends and popular opinion while making investment decisions. Over the past few years, avenues like tech stocks/funds, ULIPs (unit linked insurance plans) and NFOs (new fund offers), among others have at various points in time, captured the investor's fancy. Several investors have been guilty of getting invested without fully understanding the investment proposition on offer or evaluating the suitability. Typically, this phenomenon can be attributed to herd mentality i.e. investors got invested simply because everyone around them was doing so. It is important for investors to make investment decisions based on what is right for them, rather what everyone around them is doing.

5. The baddies keep coming back …

Batman has to contend with an impressive list of super villains - the Joker, the Penguin, Two-face, the Riddler, to name a few. Sure, Batman beats them every time, but they keep coming back. And the eternal battle between good and evil continues like an ongoing saga.

It's no different with investments. The process never really comes to an end, not even for investors who may have that ideal portfolio in place. Changing economic environment and risk appetite are some of the factors that necessitate a constant review of one's investment portfolio. A fulfilled need will be replaced by the emergence of a new one. Investors would do well to appreciate that investing is not a one-off activity. This in turn, reinforces the need to devote adequate time to the investment exercise.

Clearly, there's a lot that one can learn about investing from the Dark Knight. From an investor's perspective, the key lies in utilising these pointers to achieve his financial goals.