Is This Financial Literacy?

On 18th July, Moneylife magazine published an article titled, Bond scheme investors get a jolt. (a minimum subscription of Rs. 100 maybe necessary to read the article).

Here are a few quotes from the article followed by my views. From the title of this post it is quite obvious that my answer is NO. What I am interested in knowing is your view on the article and about this post. Criticism welcome.

  • Context: On Dynamic bonds funds and how they delivered a poor return in the last year.
    • Quote: 'Dynamic' is a marketing gimmick. Bond fund managers are incapable of
      timing the market since Central Bank can change the rules of the game
      overnight
    • View: This is an exaggeration. No one can anticipate or respond to overnight changes. 'Dynamic' here refers to the fund managers outlook over the short and long term. The time frame involved here is many months. Not overnight. There is no 'gimmick' here.
  • Context: regarding returns over the past two months
    • Quote:  While regular bond schemes declined by 2.94%, the much-touted dynamic bond schemes declined by 3.46%. This would have come as a rude shock to bond fund investors. They look for safety and smooth returns when they invest in bond schemes; an alternative to bank fixed deposits.
    • View: This is misleading. A fixed deposit can be used for a wide range of time periods: few days to 10 years. Debts other than 'liquid' and 'ultra short-term' fund should not be used for short time periods: definitely not a few months, I would say not under two years.
    • View: bond funds are alternatives to FD only when we stay invested for at least a few years. The investor must expect short-term volatility in bond funds
    • View:If investors are shocked it is their problem. Not the AMCs problem. AMCs are here to make money not educate investors. Grow up!  
    • View: if you want to champion the cause of investors then educate them. Don't empathise with illogical and uninformed opinions most investors have and sound as if investors have been taken for a ride. That is not the case here.
  • Context: One-year return
    • Quote: Over a one-year period ended 16th July, bond schemes delivered an average return of just 5.43% post tax – no better than bank FD.
    • View: Unfair apples and oranges comparison. If I need to invest for only 1 year, why would I choose high-risk bond funds? I will stick to a liquid fund. If I do invest in such funds then I have to live with uncertain and volatile returns. The point is, the investors mistake is not the funds mistake!
  • Context: regarding sell-off by foreign investors resulting in debt fund volatility.
    • Quote: We are sure no Indian bond fund investors, bond fund managers or mutual fund companies had reckoned with this new factor – volatility in returns caused by FIIs entering and exiting the bond market. From the beginning of June to 15th July, FIIshave registered a net outflow of over Rs40,000 crore due to a changed outlook of interest rates in the US and the strength of dollar.
    • View: This is speculation. Maybe this is true. Maybe it is not. To make such statements without any kind of proof is irresponsible.
    • View: I can speculate in a blog. Not in a magazine. Reporters have long forgotten that offering opinions is not news.
  • Context: the tone of the article.
    • Quote: opening line: "Those looking for safety and smooth returns from bond schemes like their fixed deposits, would be disappointed again"
    • Quote: Considering that since April 2012, the RBI has cut interest rates by 125 basis points to 7.25% from 8.50%, this is not the kind of returns bond fund investors would be expecting.
    • View: this gives the impression that the investor has made no mistake and is the wronged party. Sorry. Investors who cry about losing money deserve a kick in the butt.
    • View: the tone of the article can be found in many other Moneylife articles.

Is this financial literacy?  NO

Will I be able to sell articles If I say 'investors who make mistakes have only themselves to blame'? NO

Do I need to sensationalize to catch someones attention? YES

BOTTOM LINE: 'Buyer beware' applies everywhere. From a financial plan to a blog subscription. Whether it is a mutual fund or a Moneylife magazine subscription.

Do you agree?

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70 thoughts on “Is This Financial Literacy?

  1. ashalanshu

    Dear Pattu, I do agree. Most importantly people are missing the point that fall in NAV does not mean a real loss unless you are booking it. The fall in NAV is due to MTM - marked to market & sooner or later due to accrual of interest in the underlying securities (the debt papers) this fall 'll be recovered automatically. In liquid funds, this recovery (up tick in NAV) 'll be quick & in other funds, 'll take time.

    Thanks

    Ashal

    Reply
    1. pattu

      Absolutely. We need articles which calm people down. Not make start blaming everyone, the financial planner, the AMC and the world at large.

      Reply
    2. Srikanth Shankar Matrubai

      Well, that's why I have stopped taking Moneylife seriously. Earlier they were giving a balanced view, but these days moneylife too has started sensationlising issues and I feel that they are baised against Mutual Funds per se.

      Reply
  2. ashalanshu

    Dear Pattu, I do agree. Most importantly people are missing the point that fall in NAV does not mean a real loss unless you are booking it. The fall in NAV is due to MTM - marked to market & sooner or later due to accrual of interest in the underlying securities (the debt papers) this fall 'll be recovered automatically. In liquid funds, this recovery (up tick in NAV) 'll be quick & in other funds, 'll take time.

    Thanks

    Ashal

    Reply
    1. pattu

      Absolutely. We need articles which calm people down. Not make start blaming everyone, the financial planner, the AMC and the world at large.

      Reply
    2. Srikanth Shankar Matrubai

      Well, that's why I have stopped taking Moneylife seriously. Earlier they were giving a balanced view, but these days moneylife too has started sensationlising issues and I feel that they are baised against Mutual Funds per se.

      Reply
  3. Mohit Pandey

    I am fully agree with you Pattu....Talking only negative is not financial literacy....Article should contains both pro and cons...What I understood is the writer lacks the basic knowledge of bond funds or he/she just mixed many articles into one and copied only sensational part....Investor should invest some time in learning before starting otherwise these kind of articles will miss lead them...Thank god I don't read these kind of articles for financial literacy 🙂

    Reply
    1. pattu

      Mohit, moneylife do good research and have all the basic right. Just that they lose sight of this by sensationalizing.
      Thanks for your views.

      Reply
  4. Mohit Pandey

    I am fully agree with you Pattu....Talking only negative is not financial literacy....Article should contains both pro and cons...What I understood is the writer lacks the basic knowledge of bond funds or he/she just mixed many articles into one and copied only sensational part....Investor should invest some time in learning before starting otherwise these kind of articles will miss lead them...Thank god I don't read these kind of articles for financial literacy 🙂

    Reply
    1. pattu

      Mohit, moneylife do good research and have all the basic right. Just that they lose sight of this by sensationalizing.
      Thanks for your views.

      Reply
  5. bharat shah

    yes you provided a balance insight for both, the happening and the magazine! what do you call, inviting to read the article through email , and then stating that it is only for subscribers?

    Reply
  6. bharat shah

    yes you provided a balance insight for both, the happening and the magazine! what do you call, inviting to read the article through email , and then stating that it is only for subscribers?

    Reply
  7. Mansi

    It is a sort of "illiterate propaganda" against Mutual Funds.

    To write negatively without proper research and knowledge on the subject is purely irresponsible.

    Reply
    1. pattu

      Thank for your comment Mansi. They do indeed do the research. It just that they pitch it in the wrong way. The moment I say, 'what I say alone is right' I am wrong.

      Reply
  8. Mansi

    It is a sort of "illiterate propaganda" against Mutual Funds.

    To write negatively without proper research and knowledge on the subject is purely irresponsible.

    Reply
    1. pattu

      Thank for your comment Mansi. They do indeed do the research. It just that they pitch it in the wrong way. The moment I say, 'what I say alone is right' I am wrong.

      Reply
  9. piyush khatri

    I have done workshop of financial awareness among common masses. I asked one of the attendee (vice president of the company) how much life cover you got and he replied i am paying premium around 100,000 each year, i asked again sir this is the money you paying to the company i meant to know how much your insurance is. And to my surprise he didn't had the answer i want to listen.

    When we talk about companies who is providing financial services and selling their products there is huge list of them. But are they educating consumers about their services or products? Answer is NO. The prime target of everyone who is involved is to sell their products.

    Lots of people read magazines on a daily basis and few of them read financial magazines too. Main purpose of the magazines or newspaper is to provide news and information from the different sectors and fields but due to heavy many players in the same field one has to fought for his place. And we are listening from the childhood "everything is fair in Love and WAR". Their is a war among them to get the most readers and do the same they will do the things which is not very pleasant just like pattu mention in his post.

    According to me its our duty and responsibility towards the society to share the knowledge we possess with everybody. I am working on it.

    Regards

    Reply
    1. pattu

      Dear Piyush,
      Thanks for sharing your views in detail. It is a very sad situation. One that will take a collective effort to correct.

      Reply
  10. piyush khatri

    I have done workshop of financial awareness among common masses. I asked one of the attendee (vice president of the company) how much life cover you got and he replied i am paying premium around 100,000 each year, i asked again sir this is the money you paying to the company i meant to know how much your insurance is. And to my surprise he didn't had the answer i want to listen.

    When we talk about companies who is providing financial services and selling their products there is huge list of them. But are they educating consumers about their services or products? Answer is NO. The prime target of everyone who is involved is to sell their products.

    Lots of people read magazines on a daily basis and few of them read financial magazines too. Main purpose of the magazines or newspaper is to provide news and information from the different sectors and fields but due to heavy many players in the same field one has to fought for his place. And we are listening from the childhood "everything is fair in Love and WAR". Their is a war among them to get the most readers and do the same they will do the things which is not very pleasant just like pattu mention in his post.

    According to me its our duty and responsibility towards the society to share the knowledge we possess with everybody. I am working on it.

    Regards

    Reply
    1. pattu

      Dear Piyush,
      Thanks for sharing your views in detail. It is a very sad situation. One that will take a collective effort to correct.

      Reply
  11. nikhil

    pattu sir....i definitely agree with you regarding the tone of moneylife.....i started as an avid reader of the magazine as well as their blog......but now i find as if the financial world is only filled with fraud and deceit......i am myself a mutual fund investor and for people like me this is the best mode to invest in equity.....but after reading moneylife for past one year i am feeling that i am doing the wrong thing......they are very much interested in selling their stock letters......i wanted to know .......have you read about their mutual fund selection process something like "rolling returns"..........would love to know your views on it.......

    thanks

    nikhil

    Reply
    1. pattu

      Thanks for sharing your view Nikhil. Rolling returns is something that is used to understand how volatile the fund performs. It is not the return on your investment. Point to point returns has it own place in fund analysis and so does rolling returns. Moneylife should educate investors how and when to use what. Instead of they keep saying all fund analysis available is wrong

      Reply
  12. nikhil

    pattu sir....i definitely agree with you regarding the tone of moneylife.....i started as an avid reader of the magazine as well as their blog......but now i find as if the financial world is only filled with fraud and deceit......i am myself a mutual fund investor and for people like me this is the best mode to invest in equity.....but after reading moneylife for past one year i am feeling that i am doing the wrong thing......they are very much interested in selling their stock letters......i wanted to know .......have you read about their mutual fund selection process something like "rolling returns"..........would love to know your views on it.......

    thanks

    nikhil

    Reply
    1. pattu

      Thanks for sharing your view Nikhil. Rolling returns is something that is used to understand how volatile the fund performs. It is not the return on your investment. Point to point returns has it own place in fund analysis and so does rolling returns. Moneylife should educate investors how and when to use what. Instead of they keep saying all fund analysis available is wrong

      Reply
  13. nikhil

    pattu sir i don't want to be too demanding.....but i want you to analyze following funds for long term investment...

    dspr top 100

    hdfc equity

    icici pru dynamic

    franklin prima

    templeton india growth

    the reason for my selection are....excellent long term returns.....strong fund house reputation......fund house process oriented.......fund manager consitent ......fund managers reputation very good......your views are awaited......thanks nikhil

    Reply
    1. pattu

      Yes all of them are very good funds, provided you stay the course and remain invested for many years.

      If all these are for a single portfolio then there seems to be a little too much mid and small cap exposure.

      If you have not invested in HDFC Equity then perhaps you can choose top 200 or even FI Blue Chip instead.

      Since you want TIGF, you skip one of the funds.

      One multi-cap fund (TIGF for international equity exposure),
      one pure large cap, (FIBC or Top 200 or Top 100 if you want different fund houses)
      one pure mid-small-cap (ICIC Pru discovery)
      should do

      Reply
    2. Srikanth Shankar Matrubai

      I think you need to bring in Birla Sunlife Frontline Equity Fund in here in place of Franklin Templeton India Growth.
      Also, HDFC Equity, for my comfort, has been below par for too many quarters now. I would come out of this fund and would strongly consider Reliance Equity Opportunities Fund.

      Reply
  14. nikhil

    pattu sir i don't want to be too demanding.....but i want you to analyze following funds for long term investment...

    dspr top 100

    hdfc equity

    icici pru dynamic

    franklin prima

    templeton india growth

    the reason for my selection are....excellent long term returns.....strong fund house reputation......fund house process oriented.......fund manager consitent ......fund managers reputation very good......your views are awaited......thanks nikhil

    Reply
    1. pattu

      Yes all of them are very good funds, provided you stay the course and remain invested for many years.

      If all these are for a single portfolio then there seems to be a little too much mid and small cap exposure.

      If you have not invested in HDFC Equity then perhaps you can choose top 200 or even FI Blue Chip instead.

      Since you want TIGF, you skip one of the funds.

      One multi-cap fund (TIGF for international equity exposure),
      one pure large cap, (FIBC or Top 200 or Top 100 if you want different fund houses)
      one pure mid-small-cap (ICIC Pru discovery)
      should do

      Reply
    2. Srikanth Shankar Matrubai

      I think you need to bring in Birla Sunlife Frontline Equity Fund in here in place of Franklin Templeton India Growth.
      Also, HDFC Equity, for my comfort, has been below par for too many quarters now. I would come out of this fund and would strongly consider Reliance Equity Opportunities Fund.

      Reply
  15. Anshuk

    I totally agree with you. I consider their headlines very sensational. I have unsubscribed from their email alerts.. their email subjects were also full of spice

    Reply
    1. pattu

      Thanks for your comment Anshuk. It is such a pity they have all the resources to do a fine job. They way they project things really sours things up.

      Reply
    2. Srikanth Shankar Matrubai

      I think unsubscribing is not the answer. You may something which you may affect your portfolio.
      Instead, read all that is printed, but take it with a pinch of salt.
      And also, you need to comment on their articles which you feel revels in sensationalism

      Reply
      1. Anshuk

        You might see my comments on few of their articles. I tried talking to them and leaving feedback. But none of my comments got any response.

        Reply
  16. Anshuk

    I totally agree with you. I consider their headlines very sensational. I have unsubscribed from their email alerts.. their email subjects were also full of spice

    Reply
    1. pattu

      Thanks for your comment Anshuk. It is such a pity they have all the resources to do a fine job. They way they project things really sours things up.

      Reply
    2. Srikanth Shankar Matrubai

      I think unsubscribing is not the answer. You may something which you may affect your portfolio.
      Instead, read all that is printed, but take it with a pinch of salt.
      And also, you need to comment on their articles which you feel revels in sensationalism

      Reply
      1. Anshuk

        You might see my comments on few of their articles. I tried talking to them and leaving feedback. But none of my comments got any response.

        Reply
  17. Financial News (@TopFinNews)

    Pattu,
    One main observation I noticed in your article is that while moneylife has quoted numbers to support their arguments, you have just made statements. Of course, these statements come from the experience that you have. Therefore, you would make a stronger case if you could quote some numbers to support your argument. Otherwise your article looks like YOU are sensationalizing the issue and not moneylife.

    Well that said, I decided do some research myself to check the facts.

    In the case of dynamic bond funds

    I have referred to Value research and have checked the returns for two schemes, HDFC High Interest Dynamic and ICICI Pru Dynamic Bond. Both are from reputed fund houses but the relative performance of these schemes have been no better than the category average. Therefore, if there is no stark difference in the returns even of top fund houses, I would agree with moneylife saying these schemes are a ‘gimmick’.

    I would like to know how have dynamic bonds funds on an average performed comparatively to regular bond schemes. Don't have the data? Then don't mislead readers and defame Moneylife
    I have considered a few schemes and research from VR… Have you done a comprehensive research to prove otherwise? It would be great if you could share it. Don't have access to the data? Then don't mislead readers and defame Moneylife

    Bond funds as an alternative to bank FDs

    Had I invested in a bond fund five years back my return would have been 7.75%, the category average of debt income schemes, if I had invested in a FD five years back, I would have earned an interest of 8.5% (i.e. an effective 8.77% considering quarterly compounding). Even if I was in the highest tax brackets, post-tax, the FD return would few decimal points lower with zero volatility. I wouldn’t mind few basis points lower interest considering my return is almost guaranteed. Therefore, for me a fixed deposit would make a better choice for financial planning bcoz I know the return I would get with no risk. Had I a goal maturing today, my 5-year FD would have worked out better. You too agree bonds are high-risk in the short-term and should invest over a few years. I have considered five-years, bond funds would not have worked for me.

    I have considered just a single period as I do not have data readily available. Do you have a comprehensive comparison of bond funds Vs bank FDs to say bonds are an alternative to bank FDs? I look forward to that.

    Sell-off by foreign investors resulting in debt fund volatility

    I am still wondering how this has been construed as an opinion? FIIs did sell off Rs40,000 crore and bond yields did move up from 7% to 7.5%, and this was before RBI actions. I did come across another moneylife article on the same published in their magazine. It is much more detailed and they have mentioned that this has happened in the past as well (moneylife.in/article/33776.html) I guess there is a cost to what you can offer as free. They mention how market sentiment affect bond yields and have quoted an RBI report as well.

    As per me, this is certainly not an opinion. Like I said, it would be better if you used facts. The least one can expect from a financially literate person like you 😉

    Tone of the article

    I have no comments here. It is subjective. You may not like it because you may have said that bond funds are an alternative to FDs. Fund houses also promote investing in debt funds as an “investor education” initiative. I was reading HDFC’s booklet on debt funds that came in outlook money and they say debt schemes provide “stable returns”!! Stable return?? Their opening line is “bid goodbye to traditional fixed income products and instead, embrace debt funds to achieve your financial goals”. Even they have not provided any data to support their argument.

    If you say FD’s are an alternative to bank FD’s as fund houses are propagating the same and ‘investors who make mistakes have only themselves to blame’ then, you are washing your hands off your responsibility to your readers saying, ‘BUYER BEWARE’ or rather “Reader Beware”. I would rather say, Readers, Beware of what you read here.

    P.S. Had trouble posting using just my name & email address...

    Reply
    1. pattu

      Dear Sanjay,
      First of all thanks so very much for sparing a good amount of your time to post a two-page comment on my blog. I am glad that you didn’t lose the text when you tried to post it the first time! I don’t know why this happens. Since WordPress is my host, I have no control over such things. I will write to their support

      Second, like I said in the post I welcome criticism. It makes me think, learn and hopefully become a better person. That said, there will many situations when I need not agree with the other person. It does not mean that I do not respect their view or them. This is such a case.

      Third, your comment is so comprehensive that I would like to publish it as is as a separate post. Readers can
      share their views. I need your permission for this.

      So let me begin answering by first clarifying the tone and objective of MY post. Yes is it based on my experience. The main reason I wrote this post is to find out how others feel. That is why the title is a question. I am hardly surprised many (among those who commented so far) agree with me and I am hardly surprised that a few (maybe many, only you so far) don’t. Either way it means nothing. I am small-fry.

      In any case, I am not going to lose sleep over this. I am sure you won’t either. I or my blog is not worth it. Which is why I am so very pleasantly surprised by the effort you have put in to write this comment.
      The point is my post is NOT about ‘debt funds are better than FDs’ It is NOT about how ‘dynamic bonds fund perform well’. It is about my distaste of how Moneylife has written this article despite having all the tools necessary to do good research.

      Yes numbers are a very powerful tool in putting your point across. I was quite frankly surprised that I did not need any analysis of my own to disagree and dismiss this article of theirs. If you think I didn’t make a stronger case because of this, so be it. If you think I am sensationalizing, so be it. Frankly I find it quite flattering that you think so – given the reach of my blog.

      Statistics demands that there will be people who say ‘yay’ and people who say ‘nay’. Sometimes I correct myself and sometimes I stick to my guns. In this case I choose the latter.

      If you are comfortable with their interpretation of gimmickry, fine. The same statistics demands that every ‘reputed’ fund house will have bad apples. Sometimes it is equity funds, sometimes debt. Sometimes, both. That is life. Each person interprets this in his/her own way. That, is also life.
      You write,

      “I would like to know how have dynamic bonds funds on an average performed comparatively to regular bond schemes. Don’t have the data? Then don’t mislead readers and defame Moneylife”
      “I have considered a few schemes and research from VR… Have you done a comprehensive research to prove otherwise? It would be great if you could share it. Don’t have access to the data? Then don’t mislead readers and defame Moneylife”

      => Like I wrote my post is not dynamic bond funds at all. I have right to say how I feel, just as you. If you have a blog, please write a detailed critique of my post. Please to link back to my blog. I can use the traffic.
      Regarding your five year analysis on bond funds vs bank fds:
      There are the numbers I get when I run my Fd vs debt fund calculator:
      http://freefincal.com/investment-calculators/fd-vs-debt-fund-returns-comparator/

      If I have invested 1L 5 years ago then I will get (post-tax)
      5.314L from FD and 5.573L from the bond fund.

      I get your point and agree with it. If someone does not like volatility (measured wrt FD) then FD is the best choice for them. If someone fancies their chances of earning a bit higher return and the possibility of lower post-tax returns and avoid the hassle of yearly tax and TDS, debts funds is the way to go.
      If the 5 years is 10 years then debt fund is probably the best way to do. I am working on this comparison taking volatility into account. Unfortunately I do not have the resources to do comprehensive research. So I will have to use only the best performing debt fund.

      My grouse is that an organisation like Moneylife who have the resources and do indeed do good research do not project it properly. You need of course agree with me.

      Sell-off by foreign investors resulting in debt fund volatility.
      If someone writes, “We are sure no Indian bond fund investors, bond fund managers or mutual fund companies had reckoned with this new factor – …” , in a magazine
      without any kind of reference, I WILL call it speculative.

      Please contact them and request they include this link you have mentioned in this article. IF they agree and do make the change, I will be happy to update the post with a credit to you.

      “I guess there is a cost to what you can offer as free.”
      Do you mean my calculators? Of course there is a cost. Readers may have to put with my nauseating views.

      “They mention how market sentiment affect bond yields and have quoted an RBI report as well.”

      I have mentioned the RBI quote. I just don’t like the way it is projected. You have every right to criticise me. Like I have every right to stick to my guns.

      “As per me, this is certainly not an opinion. Like I said, it would be better if you used facts. The least one can expect from a financially literate person like you ”

      Like I said before I didn’t need to use numbers since my target is the article and not comparing financial instruments.

      “I have no comments here. It is subjective. You may not like it because you may have said that bond funds are an alternative to FDs.”

      I have never said this. I made a calculators to enable readers make up their own mind. The numbers they put should be reasonable.
      Please read this
      http://freefincal.com/2013/03/13/advantages-of-debt-funds-over-fixed-deposits-calculate-and-assess/

      Note the title of the article.

      “Fund houses also promote investing in debt funds as an “investor education” initiative. I was reading HDFC’s booklet on debt funds that came in outlook money and they say debt schemes provide “stable returns”!! Stable return?? Their opening line is “bid goodbye to traditional fixed income products and instead, embrace debt funds to achieve your financial goals”. Even they have not provided any data to support their argument.”
      Why should they? Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked.
      “If you say FD’s are an alternative to bank FD’s as fund houses are propagating the same and ‘investors who make mistakes have only themselves to blame’ then, you are washing your hands off your responsibility to your readers saying, ‘BUYER BEWARE’ or rather “Reader Beware”. I would rather say, Readers, Beware of what you read here.”

      This is answered above. I have never recommended one product or the other. I have only recommended one thing: read, learn and make informed decisions.

      When I write,
      “BOTTOM LINE: ‘Buyer beware’ applies everywhere. From a financial plan to a blog subscription. Whether it is a mutual fund or a Moneylife magazine subscription.”
      The blog in question is mine.

      “P.S. Had trouble posting using just my name & email address…”
      Answered above.

      Reply
      1. IFA 007

        No data only bile? I was wondering....whether the title of the post-'Is this financial literacy' is about this post itself

        Reply
        1. pattu

          Thanks for making the effort to share your views. Does the titular question refer to the post itself? Very possible. Hence the concluding word of caution.
          In fact this question applies to everything on personal finance.

          Reply
      2. Financial News (@TopFinNews)

        Pattu,

        I wasn't expecting that my comment would warrant another post but you to correct yours...

        I am not sure how many comments make it through your moderation.. 😉

        But what got my eye first is your calculation... 1L to 5L in 5 years.. AMAZING.. How did you not notice this? Or probably you would need to check your calculator... 😉 Maybe you were too nervous to prove you are right that you entered the data wrongly..;) 🙂 You may have meant 25, but 25 years is too long a period for debt funds.. even 10 years as you say...

        In fact, for anything greater than five I would rather invest in equity...

        Before you target any article, be sure to get your facts and data correct...

        And then you mention that you would use the best performing debt fund,,, Now why would you want to do that? isn't that hindsight bias... You should know better.. Today the best debt fund would have returned 12% compounded.. If I knew this for sure 5 years back I would have definitely invested in that scheme..

        I would have loved to take the worst performing scheme to prove my point as well... but anyone would blindly invest if you just say HDFC or ICICI... or SBI or Reliance...

        "bond funds are an alternative to FDs" is your view mentioned in your post.. I didn't make it up

        "Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked."
        It's sad about how much you know about mutual funds.. they use some part of the fee you pay to them for investor awareness initiatives.. And you don't mind them coming up with all this, that to with your money?

        'read, learn and make informed decisions.' The article link you have provided 'Advantage of FD's Vs bonds' does not provide comprehensive data.. So it does not work for me... Sad you do not take onus for what you say....

        It is easy to poke holes... Next time try doing it with data and disprove what is said... It would be a greater learning for your readers and for me 🙂

        Reply
        1. pattu

          “I am not sure how many comments make it through your moderation.. ;)”

          I moderate nothing. There is no publicity like bad publicity.

          Reg. my calculation. Yes the 5L figure is wrong. Thanks for correcting me. However, the conclusion stays the roughly the same: 1 L invested for 5 years, using above numbers, would have yielded (post-tax) 1.34 L from FD and 1.4 L from the debt fund.
          I agree with your point in the sense that debt fund volatility will push what we call short term. However,the advantage was anyway small for 5 yrs regardless of volatility.

          “Before you target any article, be sure to get your facts and data correct...”
          I think I have got them straight all right. I am clumsy and make mistakes like I did above. But I convinced about the FD vs Debt over the long term. Of course above 10 years the equity exposure should be higher but not 100% So debt always has a role.

          “And then you mention that you would use the best performing debt fund,,, Now why
          would you want to do that? isn't that hindsight bias... You should know better..
          Today the best debt fund would have returned 12% compounded.. If I knew this for
          sure 5 years back I would have definitely invested in that scheme..”

          If you notice my blog posts:
          1. I do not present a lot of analysis. It bores me. I make calculators and provide all possible options, I can think of, to the reader. If they are interested they can play with it. That said, I stand by all the statements with the little analysis I have made.

          2. Presenting too much analysis beats the purpose of making many of the calculators available.
          3. I make no claims of promoting financial literacy. I present my opinions, provide math options. The rest is ‘reader beware’. If you have a problem with it, fine. I am changing nothing.
          4. The same argument applies to the ‘best’ or ‘worst’ fund. I work with what interests me and will provide a calculator that the reader can use for ANY fund.
          5. Let the reader make their own conclusions. That will eliminate ‘creator bias’.
          6. I do work with many options and analyse the situation. I just don’t present it because I am not interested to do that.
          7. I would like readers to play with the calculators and offer their views, like you do. It makes me learn.

          Well that is my stand. Unimpressed readers are likely to stay unimpressed.

          "bond funds are an alternative to FDs" is not the entire quote. I said: “bond funds are alternatives to FD only when we stay invested for at least a few years. The investor must expect short-term volatility in bond funds”

          "Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked."
          It's sad about how much you know about mutual funds.. they use some part of the fee you pay to them for investor awareness initiatives.. And you don't mind them coming up with all this, that to with your money?”

          Yes it IS sad that I know very little about MF. No argument there. To my limited knowledge the expense ratio of a fund has no mandatory initiative contribution. It does have an ad contribution. These initiatives are, in my uninformed view, mere ads. I am not going to lose sleep over this. Don’t let me stop you. Go ahead worry about this and start a movement against this.

          The article link you have provided 'Advantage of FD's Vs bonds' does not provide comprehensive data..

          I am not interested in presenting data and analysis. My motives are listed above. If you want the link to work for you, use the calculator, else seek what you need elsewhere.

          The site is, ‘free persona finance calculators’. Not analysis.

          “Sad you do not take the onus for what you say....”. I do not need to. I have made my stand clear enough in this and the previous response. If you don’t like it, so be it.

          “It is easy to poke holes... Next time try doing it with data and disprove what is
          said... It would be a greater learning for your readers and for me :)”

          Unbiased analysis with good research will be a fantastic learning for me too. I won’t look for it Moneylife. Readers should not look for it here. They should look for free stuff with a lot of options to analyse stuff for themselves.

          You are welcome to use any means possible to do the analysis yourself and present it here as a guest post.

          As regarding correcting my post, not going to happen. You are free to critcise me in a guest post.

          Reply
  18. Financial News (@TopFinNews)

    Pattu,
    One main observation I noticed in your article is that while moneylife has quoted numbers to support their arguments, you have just made statements. Of course, these statements come from the experience that you have. Therefore, you would make a stronger case if you could quote some numbers to support your argument. Otherwise your article looks like YOU are sensationalizing the issue and not moneylife.

    Well that said, I decided do some research myself to check the facts.

    In the case of dynamic bond funds

    I have referred to Value research and have checked the returns for two schemes, HDFC High Interest Dynamic and ICICI Pru Dynamic Bond. Both are from reputed fund houses but the relative performance of these schemes have been no better than the category average. Therefore, if there is no stark difference in the returns even of top fund houses, I would agree with moneylife saying these schemes are a ‘gimmick’.

    I would like to know how have dynamic bonds funds on an average performed comparatively to regular bond schemes. Don't have the data? Then don't mislead readers and defame Moneylife
    I have considered a few schemes and research from VR… Have you done a comprehensive research to prove otherwise? It would be great if you could share it. Don't have access to the data? Then don't mislead readers and defame Moneylife

    Bond funds as an alternative to bank FDs

    Had I invested in a bond fund five years back my return would have been 7.75%, the category average of debt income schemes, if I had invested in a FD five years back, I would have earned an interest of 8.5% (i.e. an effective 8.77% considering quarterly compounding). Even if I was in the highest tax brackets, post-tax, the FD return would few decimal points lower with zero volatility. I wouldn’t mind few basis points lower interest considering my return is almost guaranteed. Therefore, for me a fixed deposit would make a better choice for financial planning bcoz I know the return I would get with no risk. Had I a goal maturing today, my 5-year FD would have worked out better. You too agree bonds are high-risk in the short-term and should invest over a few years. I have considered five-years, bond funds would not have worked for me.

    I have considered just a single period as I do not have data readily available. Do you have a comprehensive comparison of bond funds Vs bank FDs to say bonds are an alternative to bank FDs? I look forward to that.

    Sell-off by foreign investors resulting in debt fund volatility

    I am still wondering how this has been construed as an opinion? FIIs did sell off Rs40,000 crore and bond yields did move up from 7% to 7.5%, and this was before RBI actions. I did come across another moneylife article on the same published in their magazine. It is much more detailed and they have mentioned that this has happened in the past as well (moneylife.in/article/33776.html) I guess there is a cost to what you can offer as free. They mention how market sentiment affect bond yields and have quoted an RBI report as well.

    As per me, this is certainly not an opinion. Like I said, it would be better if you used facts. The least one can expect from a financially literate person like you 😉

    Tone of the article

    I have no comments here. It is subjective. You may not like it because you may have said that bond funds are an alternative to FDs. Fund houses also promote investing in debt funds as an “investor education” initiative. I was reading HDFC’s booklet on debt funds that came in outlook money and they say debt schemes provide “stable returns”!! Stable return?? Their opening line is “bid goodbye to traditional fixed income products and instead, embrace debt funds to achieve your financial goals”. Even they have not provided any data to support their argument.

    If you say FD’s are an alternative to bank FD’s as fund houses are propagating the same and ‘investors who make mistakes have only themselves to blame’ then, you are washing your hands off your responsibility to your readers saying, ‘BUYER BEWARE’ or rather “Reader Beware”. I would rather say, Readers, Beware of what you read here.

    P.S. Had trouble posting using just my name & email address...

    Reply
    1. pattu

      Dear Sanjay,
      First of all thanks so very much for sparing a good amount of your time to post a two-page comment on my blog. I am glad that you didn’t lose the text when you tried to post it the first time! I don’t know why this happens. Since WordPress is my host, I have no control over such things. I will write to their support

      Second, like I said in the post I welcome criticism. It makes me think, learn and hopefully become a better person. That said, there will many situations when I need not agree with the other person. It does not mean that I do not respect their view or them. This is such a case.

      Third, your comment is so comprehensive that I would like to publish it as is as a separate post. Readers can
      share their views. I need your permission for this.

      So let me begin answering by first clarifying the tone and objective of MY post. Yes is it based on my experience. The main reason I wrote this post is to find out how others feel. That is why the title is a question. I am hardly surprised many (among those who commented so far) agree with me and I am hardly surprised that a few (maybe many, only you so far) don’t. Either way it means nothing. I am small-fry.

      In any case, I am not going to lose sleep over this. I am sure you won’t either. I or my blog is not worth it. Which is why I am so very pleasantly surprised by the effort you have put in to write this comment.
      The point is my post is NOT about ‘debt funds are better than FDs’ It is NOT about how ‘dynamic bonds fund perform well’. It is about my distaste of how Moneylife has written this article despite having all the tools necessary to do good research.

      Yes numbers are a very powerful tool in putting your point across. I was quite frankly surprised that I did not need any analysis of my own to disagree and dismiss this article of theirs. If you think I didn’t make a stronger case because of this, so be it. If you think I am sensationalizing, so be it. Frankly I find it quite flattering that you think so – given the reach of my blog.

      Statistics demands that there will be people who say ‘yay’ and people who say ‘nay’. Sometimes I correct myself and sometimes I stick to my guns. In this case I choose the latter.

      If you are comfortable with their interpretation of gimmickry, fine. The same statistics demands that every ‘reputed’ fund house will have bad apples. Sometimes it is equity funds, sometimes debt. Sometimes, both. That is life. Each person interprets this in his/her own way. That, is also life.
      You write,

      “I would like to know how have dynamic bonds funds on an average performed comparatively to regular bond schemes. Don’t have the data? Then don’t mislead readers and defame Moneylife”
      “I have considered a few schemes and research from VR… Have you done a comprehensive research to prove otherwise? It would be great if you could share it. Don’t have access to the data? Then don’t mislead readers and defame Moneylife”

      => Like I wrote my post is not dynamic bond funds at all. I have right to say how I feel, just as you. If you have a blog, please write a detailed critique of my post. Please to link back to my blog. I can use the traffic.
      Regarding your five year analysis on bond funds vs bank fds:
      There are the numbers I get when I run my Fd vs debt fund calculator:
      http://freefincal.com/investment-calculators/fd-vs-debt-fund-returns-comparator/

      If I have invested 1L 5 years ago then I will get (post-tax)
      5.314L from FD and 5.573L from the bond fund.

      I get your point and agree with it. If someone does not like volatility (measured wrt FD) then FD is the best choice for them. If someone fancies their chances of earning a bit higher return and the possibility of lower post-tax returns and avoid the hassle of yearly tax and TDS, debts funds is the way to go.
      If the 5 years is 10 years then debt fund is probably the best way to do. I am working on this comparison taking volatility into account. Unfortunately I do not have the resources to do comprehensive research. So I will have to use only the best performing debt fund.

      My grouse is that an organisation like Moneylife who have the resources and do indeed do good research do not project it properly. You need of course agree with me.

      Sell-off by foreign investors resulting in debt fund volatility.
      If someone writes, “We are sure no Indian bond fund investors, bond fund managers or mutual fund companies had reckoned with this new factor – …” , in a magazine
      without any kind of reference, I WILL call it speculative.

      Please contact them and request they include this link you have mentioned in this article. IF they agree and do make the change, I will be happy to update the post with a credit to you.

      “I guess there is a cost to what you can offer as free.”
      Do you mean my calculators? Of course there is a cost. Readers may have to put with my nauseating views.

      “They mention how market sentiment affect bond yields and have quoted an RBI report as well.”

      I have mentioned the RBI quote. I just don’t like the way it is projected. You have every right to criticise me. Like I have every right to stick to my guns.

      “As per me, this is certainly not an opinion. Like I said, it would be better if you used facts. The least one can expect from a financially literate person like you ”

      Like I said before I didn’t need to use numbers since my target is the article and not comparing financial instruments.

      “I have no comments here. It is subjective. You may not like it because you may have said that bond funds are an alternative to FDs.”

      I have never said this. I made a calculators to enable readers make up their own mind. The numbers they put should be reasonable.
      Please read this
      http://freefincal.com/2013/03/13/advantages-of-debt-funds-over-fixed-deposits-calculate-and-assess/

      Note the title of the article.

      “Fund houses also promote investing in debt funds as an “investor education” initiative. I was reading HDFC’s booklet on debt funds that came in outlook money and they say debt schemes provide “stable returns”!! Stable return?? Their opening line is “bid goodbye to traditional fixed income products and instead, embrace debt funds to achieve your financial goals”. Even they have not provided any data to support their argument.”
      Why should they? Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked.
      “If you say FD’s are an alternative to bank FD’s as fund houses are propagating the same and ‘investors who make mistakes have only themselves to blame’ then, you are washing your hands off your responsibility to your readers saying, ‘BUYER BEWARE’ or rather “Reader Beware”. I would rather say, Readers, Beware of what you read here.”

      This is answered above. I have never recommended one product or the other. I have only recommended one thing: read, learn and make informed decisions.

      When I write,
      “BOTTOM LINE: ‘Buyer beware’ applies everywhere. From a financial plan to a blog subscription. Whether it is a mutual fund or a Moneylife magazine subscription.”
      The blog in question is mine.

      “P.S. Had trouble posting using just my name & email address…”
      Answered above.

      Reply
      1. IFA 007

        No data only bile? I was wondering....whether the title of the post-'Is this financial literacy' is about this post itself

        Reply
        1. pattu

          Thanks for making the effort to share your views. Does the titular question refer to the post itself? Very possible. Hence the concluding word of caution.
          In fact this question applies to everything on personal finance.

          Reply
      2. Financial News (@TopFinNews)

        Pattu,

        I wasn't expecting that my comment would warrant another post but you to correct yours...

        I am not sure how many comments make it through your moderation.. 😉

        But what got my eye first is your calculation... 1L to 5L in 5 years.. AMAZING.. How did you not notice this? Or probably you would need to check your calculator... 😉 Maybe you were too nervous to prove you are right that you entered the data wrongly..;) 🙂 You may have meant 25, but 25 years is too long a period for debt funds.. even 10 years as you say...

        In fact, for anything greater than five I would rather invest in equity...

        Before you target any article, be sure to get your facts and data correct...

        And then you mention that you would use the best performing debt fund,,, Now why would you want to do that? isn't that hindsight bias... You should know better.. Today the best debt fund would have returned 12% compounded.. If I knew this for sure 5 years back I would have definitely invested in that scheme..

        I would have loved to take the worst performing scheme to prove my point as well... but anyone would blindly invest if you just say HDFC or ICICI... or SBI or Reliance...

        "bond funds are an alternative to FDs" is your view mentioned in your post.. I didn't make it up

        "Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked."
        It's sad about how much you know about mutual funds.. they use some part of the fee you pay to them for investor awareness initiatives.. And you don't mind them coming up with all this, that to with your money?

        'read, learn and make informed decisions.' The article link you have provided 'Advantage of FD's Vs bonds' does not provide comprehensive data.. So it does not work for me... Sad you do not take onus for what you say....

        It is easy to poke holes... Next time try doing it with data and disprove what is said... It would be a greater learning for your readers and for me 🙂

        Reply
        1. pattu

          “I am not sure how many comments make it through your moderation.. ;)”

          I moderate nothing. There is no publicity like bad publicity.

          Reg. my calculation. Yes the 5L figure is wrong. Thanks for correcting me. However, the conclusion stays the roughly the same: 1 L invested for 5 years, using above numbers, would have yielded (post-tax) 1.34 L from FD and 1.4 L from the debt fund.
          I agree with your point in the sense that debt fund volatility will push what we call short term. However,the advantage was anyway small for 5 yrs regardless of volatility.

          “Before you target any article, be sure to get your facts and data correct...”
          I think I have got them straight all right. I am clumsy and make mistakes like I did above. But I convinced about the FD vs Debt over the long term. Of course above 10 years the equity exposure should be higher but not 100% So debt always has a role.

          “And then you mention that you would use the best performing debt fund,,, Now why
          would you want to do that? isn't that hindsight bias... You should know better..
          Today the best debt fund would have returned 12% compounded.. If I knew this for
          sure 5 years back I would have definitely invested in that scheme..”

          If you notice my blog posts:
          1. I do not present a lot of analysis. It bores me. I make calculators and provide all possible options, I can think of, to the reader. If they are interested they can play with it. That said, I stand by all the statements with the little analysis I have made.

          2. Presenting too much analysis beats the purpose of making many of the calculators available.
          3. I make no claims of promoting financial literacy. I present my opinions, provide math options. The rest is ‘reader beware’. If you have a problem with it, fine. I am changing nothing.
          4. The same argument applies to the ‘best’ or ‘worst’ fund. I work with what interests me and will provide a calculator that the reader can use for ANY fund.
          5. Let the reader make their own conclusions. That will eliminate ‘creator bias’.
          6. I do work with many options and analyse the situation. I just don’t present it because I am not interested to do that.
          7. I would like readers to play with the calculators and offer their views, like you do. It makes me learn.

          Well that is my stand. Unimpressed readers are likely to stay unimpressed.

          "bond funds are an alternative to FDs" is not the entire quote. I said: “bond funds are alternatives to FD only when we stay invested for at least a few years. The investor must expect short-term volatility in bond funds”

          "Their job is to make money not educate investors. If someone actually believes their initiatives they to get their brains checked."
          It's sad about how much you know about mutual funds.. they use some part of the fee you pay to them for investor awareness initiatives.. And you don't mind them coming up with all this, that to with your money?”

          Yes it IS sad that I know very little about MF. No argument there. To my limited knowledge the expense ratio of a fund has no mandatory initiative contribution. It does have an ad contribution. These initiatives are, in my uninformed view, mere ads. I am not going to lose sleep over this. Don’t let me stop you. Go ahead worry about this and start a movement against this.

          The article link you have provided 'Advantage of FD's Vs bonds' does not provide comprehensive data..

          I am not interested in presenting data and analysis. My motives are listed above. If you want the link to work for you, use the calculator, else seek what you need elsewhere.

          The site is, ‘free persona finance calculators’. Not analysis.

          “Sad you do not take the onus for what you say....”. I do not need to. I have made my stand clear enough in this and the previous response. If you don’t like it, so be it.

          “It is easy to poke holes... Next time try doing it with data and disprove what is
          said... It would be a greater learning for your readers and for me :)”

          Unbiased analysis with good research will be a fantastic learning for me too. I won’t look for it Moneylife. Readers should not look for it here. They should look for free stuff with a lot of options to analyse stuff for themselves.

          You are welcome to use any means possible to do the analysis yourself and present it here as a guest post.

          As regarding correcting my post, not going to happen. You are free to critcise me in a guest post.

          Reply
  19. Jagdish

    Pattu Sir, I am regular reader of your blog and also Moneylife 🙂 Reading bottom line of this post, I felt focus shifted from specific ML article to Moneylife subscription and I feel that’s unfair. I am not expert, but after reading ML more than year, I can surely say they spend enough time and space towards investor/saver education, often going against BIG institutions. Its unparalleled. Okay, at times they sound like they are overdoing, overprotecting but to me it’s much better than endorsing bad products or even selling products indirectly, recommending bogus products.

    Reply
    1. pattu

      Dear Jagdish, thank you for taking the effort to comment. It is obvious from your comment that you have not blindly believed what they written. So you have already exercised 'buyer/reader beware'. I am confident you will exercise the same while reading my blog. The bottom line is addressed to those who might not.

      I understand what you are trying to say, however,please don't compare moneylife with those who mis-sell. That is an apple and orange comparison.

      Those who claim to propagate financial literacy must be judged on an absolute level. Of course moneylife is better than most, but that does not mean they can do stuff like what I have mentioned.

      Keep commenting. Thank you.

      Reply
  20. Jagdish

    Pattu Sir, I am regular reader of your blog and also Moneylife 🙂 Reading bottom line of this post, I felt focus shifted from specific ML article to Moneylife subscription and I feel that’s unfair. I am not expert, but after reading ML more than year, I can surely say they spend enough time and space towards investor/saver education, often going against BIG institutions. Its unparalleled. Okay, at times they sound like they are overdoing, overprotecting but to me it’s much better than endorsing bad products or even selling products indirectly, recommending bogus products.

    Reply
    1. pattu

      Dear Jagdish, thank you for taking the effort to comment. It is obvious from your comment that you have not blindly believed what they written. So you have already exercised 'buyer/reader beware'. I am confident you will exercise the same while reading my blog. The bottom line is addressed to those who might not.

      I understand what you are trying to say, however,please don't compare moneylife with those who mis-sell. That is an apple and orange comparison.

      Those who claim to propagate financial literacy must be judged on an absolute level. Of course moneylife is better than most, but that does not mean they can do stuff like what I have mentioned.

      Keep commenting. Thank you.

      Reply

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