Is This Financial Literacy?

Published: July 24, 2013 at 8:44 am

Last Updated on

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

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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.

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