It is saying that “Corrections are temporary, Growth is Permanent.”
But Are you aware of this?
It’s not just a matter of “Rise and Fall,” it is directly connected to income.
As shown in the above chart, Nifty50 Fall by 38.43% MF Scheme Fall by 38.91% the SIP returns were satisfactory 11.55%, unfortunately, Market fall due to COVID-19 and within 3.5 months valuations gone in Red Zone -4.47% this same scenario was in almost all the scheme.
Due to this fall, MFD’s entire AUM of equity fund down by more or less 35-40%. This situation will impact two ways in MFD’s business life.
1st of all Client’s confidence in MFD’s brand image becomes questionable.
2nd one is directly connected with your income. When the market goes up, your AUM goes up, hence the Trail commission also, the same way when the market touches the bottom level, the income squeezes.
Now, we will calculate how it will hurt MFDs. Suppose an MFD is having an AUM of ₹100 Crs facing a 40% washout in the AUM. can you imagine how much income would be lost by him during the downfall? MFD will be losing 40 Cr of AUM.
If the MFD is getting a trail of 1% on his aum means, going to lose 40% of his revenue, which will cost him 40 lakhs yearly, almost 3.5 Lakh monthly.
Now, we will see the side effect of the scenario. in an Investor’s mind? Remember, investors are investing their own hard earn money for making more money, not for riding on a rollercoaster. Once the Investor moves out from MFD’s banner, this will be realised.
Read my post “Interesting case of Behavior Management“.
MFDs need not be negative on this issue it is a matter of some understanding. Another thing said while the market “Rise and Fall” is that “Correction is temporary growth is permanent”.
By watching the above infographics, one will think that market has grown too much compared to the pre-correction.
Now, by reading the following table, reality will be understood.
Now it is cleared that “Correction is temporary Growth is Permanent” but, the biggest question is at what cost?
In the above chart, the most interesting case is 2008, when the market has fallen by 61% and recovered by 157% but, actual growth in the market from pre-fall to post-fall is ZERO.
One more thing is to be noted that the period taken between Fall and Recovery is almost 2.5 years which is wasted in terms of returns to the investor, which reduced the entire long term portfolio’s return by almost 20 to 30% after every fall.
One of the most important facts to remember is that while your client’s portfolio is becoming volatile, your own income is not stable either.
Then, what to do?
It is very crucial to protect investors AUM because it is the source of income. Without protecting investors money, your income might not be stable.
MFDs must fight to protect the Investor’s AUM in a dual front.
- Protect AUM against disruptions in the market: For protecting AUM against disruptions, one can not be successful by using market-driven strategies. Some different strategies should be adopted which protects the portfolio from erosion during the downfall. It is possible by doing risk management of the portfolio.
- Protect AUM against shifting to Direct plans: For protecting AUM against shifting, one can not be protected just by using traditional plans, which are available in Direct plans. For that, you need to adopt a unique strategy that is available to you only, so the investor has no choice except to choose you.
For protecting your income, it is not adequate to protect an investor’s AUM from disruption. It also needs to be protected against transfer. In short, your strategy should be fulfilling both requirements. Protecting investor AUM with uniqueness as shown in the above table – “How to protect portfolio using BLTP.”
We will elaborate on both points in future blogs. Stay tuned with us. If you haven’t subscribed yet, do it now.
What is stopping MFDs from becoming limitless Advisor?
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