Many people come to my blog and ask in which fund should they invest. Even on the mass media like television or when I write articles for a newspaper this is the question that they ask. Or the question is “I have Rs.20000 please suggest a fund scheme.

Now, I can either say “Mirae Emerging Bluechip Fund” or get into asking far more questions – like doing a financial plan for him/her. So sometimes I suggest “please put your portfolio on some website and send me the login and pw”. Then either they lose interest or I lose interest.

The only HONEST thing that I can do for them is to say “Go get an adviser”. Now this guy can be a fee based adviser, an IFA, ….whatever.

However, I do realize that many people (should I say most) do not have the capacity to handle their own investments in direct mode. The mutual funds do not have very easy websites. So a person goes to the website of the mutual fund and then wonders what to do.

Some of them have found an even more easy way to invest. Visit the value research website or the Morningstar site and invest in 5* rated funds. It could be an aggressive small cap fund, but they really do not care.

They don’t know which fund to select, how to nominate, whether to nominate, – but they start.

The worst people are those who think that ET now app is direct. Sorry your fault. It has an option by which it goes through an ARN too. I believe it has a direct option too.

Some banks charge Rs. 50 per month as “sip charges” – apart from the bank being an arn holder. I am convinced that we need 3 types of advisers:

1. a comprehensive one who will do a need analysis and do the whole thing of selecting funds AND investing.
2. an adviser who will do a need analysis and broadly tell you what to do – and the client does his own execution and
3. an adviser who will do all the execution. The client does the intellectual part.

Obviously all 3 advisers will be compensated differently. The first adviser gets the maximum, and the 3rd adviser gets the minimum. Sadly there are no advisers in the 3rd category, and not too many people think it worthwhile. However a variant of that is available. Some hni investors invest directly for a part of their portfolio and partly through an adviser – you understand the compensation I presume.

Now look at how funds react to the ‘Direct’ investors. Obviously some fund houses do not care about the Direct investor. In fact they are happy if an investor comes and invests in a ‘Direct’ form. However the amc has no clue or capacity to handle an ill informed investor. No names please…but I was sitting in the office when a 70 year old man came and said “I wish to invest”. The girl at the counter said “sir for retired people we are suggesting a balanced fund..and you will get 1% dividend per month”. He said “that is very good…can i invest Rs. 2,00,000? And he invested Rs. 200,000. This happened a few months ago. I have no clue how the portfolio is faring. Your guess is as good as mine.

I was in another fund house – when a potential investor wanted to invest the girl said “sire I am not qualified to advise you, please seek the help of an adviser”.

For fund houses with 1 office and 10 employees handling direct investors will be difficult. However, fund houses with say 250 branches (or more) think they can handle the ‘direct’ customer. Well, they will have to invest a lot in offices, space, people, and training. Knowing this big fund house, they will not.

I guess in the immediate short run the amc business will be more profitable, but in about 12 months time they will miss the lowest end IFA and in about 24 months, they will see a shrinkage in assets – or rather a dramatic fall in the number of folios. This will happen because there will be people pulling them to other products which may be better for the distributor – but hey he has to live too…right?