1. #1

    Join Date
    Aug 2011
    Lahore, Pakistan
    Blog Entries

    Mutual fund and transparency

    Does a mutual fund reveal all aspects of its performance with the investors? Does it talk about the schemes which have failed to perform well and beat the benchmark index? Is it completely transparent in all aspects?

    Answer is no.

    But then somebody would ask a very obvious question and that is why should a mutual fund talk about its failed schemes or under-performing schemes?

    After all almost all mutual funds have some schemes that they can showcase. While the issue of transparency of mutual funds require a detailed analysis, for small investors it is important to read beyond the obvious.

    They should not just look at some successful schemes but should rather go beyond that. But that apart, what is the responsibility of mutual funds?

    Imagine a mutual fund comes out with an advertisement which says that we have till date launched 25 schemes of equity mutual fund out of which 17 have outperformed underlying index while 8 have failed to outperform them. What impression would this advertisement carry?

    This will create an impression that mutual funds are not infallible and they can also fail as 8 out of 25 schemes in the example mentioned above have failed. This would also make investors worry about the so-called expertise that fund managers claim to have.

    Another area that mutual funds are not very transparent with is the way that they display returns of their schemes. While advertising performance of various schemes, mutual funds never display returns for a period when a particular scheme could not perform well. There is no denying the fact that all these information can be obtained from some reliable resources. However, won’t it be better if mutual fund itself discloses these details? But despite of mutual funds not providing all details with adequate transparency, role of an investor requires him to do lots of analysis before buying a mutual fund scheme.

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