Mutual fund investors forget common sense, they are net sellers when market is low

I have seen many mutual fund investors complaining their investments in mutual funds not yielding expected returns. When someone invests in mutual funds, entry and exit timings are also the deciding factors of your returns on investments. I have seen a number of my investors asking for suggestions for funds when the market is high. They are lured by the reports which mention the double digits numbers in returns column when the market is high. They are afraid of investing in equity and equity funds when the market is low. Their sentiments are purely governed by the short-term fund performance reports like 6 months or a year which are usually negative during the lower performance of stock markets. Anyone who has common sense can tell this is against common sense.

MF Inflows and market performance. Pic courtesy : Moneylife

Moneylife Advisory has published an article in their blog, comparing the fund flows in equity funds and market performance.  The article has proved with data that the mutual fund's investors tend to buy high and sell low. Indian share market was low in February 2016 and started recovery in March 2016. The net investment in mutual funds would have been positive or at least stagnant during this period to make the attractive returns. Mutual fund investors have done the reverse, net fund flow is negative during this period. There was more redemption than purchase. They have withdrawn from mutual fund rather investing when the market is low. During August 2016, the stock market is witnessing a huge inflow of funds, both foreign and domestic pushing the market to an all-time high. The mutual fund investors have also enthusiastically invested in last month. Investing in mutual funds when the market is high does not make much harm if someone is looking at a long horizon. But redeeming funds when the market is low will definitely make harm to your returns. 

I have some investments in SBI Magnum Tax Gain. My lock in period in the fund was over and was planning to redeem to make fresh investments for present year tax exemptions. If I had redeemed when the market was low, I would have got around Rs 100 per unit. Now I am getting Rs 125 per unit. I am getting 25% extra return for waiting just 5 months!! My three years waiting could have gone in vain if I was also one among them who made the net inflow negative when the market was low. (This fund is an example, I am not suggesting this fund)

Be a wise investor and use common sense. Invest low and redeem high.

Subramanian Swamy rightly said replace private bank's shares in GSTN with PSBs

GST bill became law previous week after president signed it post ratification by the majority of states. GST brings most of the indirect taxes under one roof. As always, the banks will be playing a major role in collecting the taxes and providing the data of collected taxes to the concerned departments. This needs a huge infrastructure to maintain, process, analyse and to connect the government department with the banks network.

Goods and Services Tax Network, (GSTN) is a Section 25 (not for profit), non-Government, private limited company. It was incorporated during the previous UPA regime to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST). We can see the first two parties, state and central governments in the share holdings of GSTN. The important stake holders- Public Sector Banks which collects the taxes for the government are not in the scene. The government of India holds 24.5 per cent stake in GSTN while states together hold another 24.5 per cent. Balance 51% equity is with non-Government financial institutions like ICICI Bank, HDFC Bank, HDFC Ltd, LIC Housing Finance and NSE SIC.

GSTN has applied for loan of Rs 550 crores from IDFC. The central government is standing as guarantor for this loan though it is not a majority share holder. This is questioned by Mr Subramanian Swamy- why the majority stake holders are not the guarantors for this loan? In a way he right, but the government's interest in faster implementation of GST is not questionable. His comments on shareholding of GSTN makes the issue interesting.

Subramanian Swamy

As Mr Swamy's says partnering with private institutions to set up an institutions like GSTN to handle highly sensetive data is the matter of worry. I am not saying ICICI, HDFC or LICHF are unreliable, but when someone inside the house are capable of doing some job, calling an outsider to do the same job makes no sense. Firstly, public sector financial institutions holds the majority of share in banking industry and they are capable of partnering with government for implementation of such a high aimed mission like GST even during the period of high bad debts. Secondly, it is not ICICI or HDFC would be collecting the majority of the taxes, but it is definitely SBI, a public sector bank will be the indispensable tax collector for the government even in future. Third reason is by making public sector banks to hold stakes in GSTN, goverment would have had better control over it. Mandatory audit by CAG is always better than an offer to CAG audit. Mr Swamy's proposal to replace GSTN share holding of  private banks with public sector banks makes some sense because tax data is sensitive and also confidential.