How Bfsi works – Hedge funds
You may have heard of Hedge funds, and their very rich fund managers. How do they make money?
Simple. They charge a 2% fee and take 20% of the profits.
So if you put Rs. 1 crore in a Hedge fund (In India they are not called Hedge funds, but variants of PMS). They charge you a 2% fees (Rs. 2 lakhs) and if they make say 15% return (Rs. 15Lakhs) they take 20% of that. That means Rs 3L.
So on your investment of Rs. 1 crore, they make Rs. 5L, or at least Rs. 2L if they do not make profits.
So that is how hedge fund managers get rich. On fees. Not on the success of their fund performance.
Remember Robert Kiyosaki? he did not make money by doing those things which he said. He made money by selling expensive seats in his “Rich Dad, Poor Dad” workshops.
Get that? I thought you should know.
Aditya Raghu Vamsi Pochiraju
Nice article Sir. Even I am on the same opinion of yours. After reading Rich Dad and Poor Dad, I thought I learnt a lot about financial management and investing. After few years, I summarized entire book to a small equation. Recently, last week when I saw Kiyosaki’s book on Retire Rich or some title, I finished the book under an hour.
There are many snake oil salesman in the market of Finance. They have even made big name in YouTube, with lot of subscribers. But, everytime when they say “Paid Financial Planner” or make a statement without evidence, I hit Dislike button.
subra
there is no opinion here. Just facts.
Krish
Even the PMS Gurus in India does the same. These guys conducts fancy workshops/meetings to lure customers. They also pump in lots of paid articles about themselves. When they lose, they blame on everything. Even if they gain small, somuch camera ‘flash’ everywhere in media, instagram, twitter and blogs
Worse, these PMS is not audited or regulated like MFs. They publish full of lie returns and trap the new customers. I can’t believe that some PMS guys lost 40% and they comes on TV and give a talk on value investing. I am sure no PMS in India has ever beaten Index but what surprises me is that they get investors on board.
ck
With few exceptions, we are always surrounded by day-light white-collar robbers having different fancy names (wealth manager, relationship manager, wealth adviser, financial planner, personal banker, customer care manager, blah…blah…blah..) . As long as an individual investor is ignorant of financial basics,risk identification / assessment / management (risk mitigation), this trend of getting fooled and cheated will never stop. Be reminded of Warren Bufftet’s rules. #1. Do not lose money. #2. Remember Rule #1. Easier said than done, isn’t it?
Madikeri Abu
Krish, the guy who has lost or rather destroyed 40 percent of clients’ money is still gets invited by ticker TV channels and he still gives his ‘gyan’ to the audience. What an audacity! Yeah, like you everyone knows who that big mouth is.
Krish
What is even more surprising is investors are moving into unregulated dangerous environment with influence of glitz, glamour, social media, organized events and TV etc . No wonder PMS, ULIPs, P2P lending etc are mushrooming everywhere.
elbis
In India, I don’t know of a single PMS/AIF which charges 2 and 20. Usually, it’s either fixed fees of 2.5% or 2 and a performance based fees post a hurdle rate. So, the actual fees from Subra’s example would be Rs. 2L + Rs. 1L (15 – 10) * 20. 3l isn’t exorbitant especially if retail people are doing regular mutual funds which charge 2-2.5%.
I guess direct mutual fund/ETF is the only way to avoid such high fees.