{"id":19,"date":"2016-08-25T06:48:43","date_gmt":"2016-08-25T06:48:43","guid":{"rendered":"http:\/\/bltpindia.com\/wordpress\/?p=19"},"modified":"2016-10-04T18:17:29","modified_gmt":"2016-10-04T18:17:29","slug":"challenges-to-mf-distributors-2","status":"publish","type":"post","link":"https:\/\/bltpindia.com\/wordpress\/index.php\/2016\/08\/25\/challenges-to-mf-distributors-2\/","title":{"rendered":"Challenges to MF Distributors \u2013 2"},"content":{"rendered":"

As In the <\/strong>part \u2013 1<\/a> of this article we have seen Challenges from outside i.e. from Regulator has made the required changes to protect the investors\u2019 interest<\/strong><\/p>\n

\"warning<\/p>\n

In this section we will talk about the challenges from inside the distributor\u2019s mind-set, office & Style of Practicing\/Marketing.<\/p>\n

1]<\/strong> First Challenge<\/strong> <\/span>is word \u201cCompounding<\/strong> Effect<\/strong><\/span>\u201d used in marketing excessively<\/strong>.<\/span> To prove this distributor takes the calculator and start demonstrating that how much you will be earning if your returns increase even by 1% your value will grow by 100716 more in the span of 30 yrs in just investing 11000 LS. [4,30,275 instead of 3,29,559 @ 12%]<\/p>\n

Unknowingly distributors are marketing for Direct Plans<\/span>. <\/strong>They [Fund-Houses] only have to say that Direct Plans are earning 1% more due to less expense ratio rest will be understood by the investor because distributors have already taught him that what is the compounding.<\/p>\n

One more thing is to be noted that is there any compounding in Mutual Fund?<\/p>\n

\"compounding\"<\/p>\n

What is meaning of compounding<\/p>\n

Compounding<\/h2>\n

The process of earning<\/strong><\/a> interest<\/strong><\/a> on a loan<\/strong><\/a> or other fixed-income instrument where the interest can itself earn interest.<\/em> <\/span>That is, interest previously calculated is included in the calculation of future interest. For example, suppose someone had the same certificate of deposit for $1000 that pays 3%, compounding each month. The interest paid is $30 in the first month (3% of $1,000), $30.90 in the second month (3% of $1,030), and so forth. In this situation, the more frequently interest is compounded, the higher the yield<\/strong><\/a> will be on the instrument. See also: Amortization<\/strong><\/a>, Time value of money<\/strong><\/a>, Simple interest<\/strong><\/a>.<\/p>\n

Source: http:\/\/financial-dictionary.thefreedictionary.com\/compounding<\/a><\/p>\n

Now can we see anything like this in Mutual Fund Investment? In mutual funds value of an investment may also go down then where is compounding? we are just deriving the returns in the form of compounded annualised \u2013 XIRR [Most scientific method of calculating returns]\/CAGR[one more mis-conception CAGR cannot be utilised in staggered folio it can only be workable on point to point return calculation]<\/p>\n

All these knowledge sharing are turns boomerang to distributors because Investor only knows compounding, that distributors have taught them, so he becomes angry for not getting Proportionate Return<\/strong> while downside of the market by applying calculators which distributor had used while marketing.<\/p>\n

THEN WHAT TO DO?<\/strong><\/p>\n

You have to change the marketing style from Compounding Effect to genuineness.<\/p>\n

Educate the investor \u201cBUY AT LOW & SELL AT HIGH<\/span><\/strong>\u201d Why we should invest when market is is low and book profit when market is higher this way educating and preparing investor for both the situations so investor will not be panic while downturn of the market.<\/p>\n

Most important is\u00a0Use Calculators for planning only instead of marketing<\/strong><\/span>.<\/p>\n

2]<\/strong> Second Challenge<\/strong> <\/span>is from overusing Equity for an investment<\/span> <\/strong>and ignoring other type of MFs. No doubt that Equity is the only class which is generating returns to beat inflation. BY using Equity only one will be highly exposed to market related risk.<\/p>\n

THEN WHAT TO DO?<\/strong><\/p>\n

Instead of using Equity exclusively, better to use word excessively, combination of the MFs to be used to make investments protected against market volatility and risk.<\/p>\n

Debt \/ Liquid will provide you safety and Equity will generates Growth<\/p>\n

\u00a0<\/strong>3]<\/strong> Third Challenge<\/strong> <\/span>is from overusing traditional tools for investment like SIP\/STP\/SWP<\/span> <\/strong>which are widely used to get better averaging and through these generating higher returns. Is it sufficient to do like this? Will it be protect investor against external challenges? Answer is NO<\/span> <\/strong>because what you are using is also the used in DIY [DO IT YOURSELF] model<\/strong> <\/span>of Investing in MF started with the Direct Plans and Direct plans have Advantage over this. By default Direct Plans are having lower expense\u00a0ratio which generates higher returns compared to indirect plans if the same pattern is applied in both.<\/p>\n

THEN WHAT TO DO?<\/strong><\/p>\n\n\n\n\n
Focus on NEXT Practice\u00a0rather than BEST Practice<\/strong><\/span><\/td>\n<\/tr>\n
\n

Best Practices look backward, providing<\/strong> advice that worked in the past<\/strong><\/span><\/p>\n

Next Practices focus on what to do in the time ahead<\/strong><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\u00a0<\/strong>Design your own unique mechanism which is not available in DIRECT PLANs<\/strong><\/span><\/p>\n

Conclusion <\/u><\/strong><\/p>\n

    \n
  1. Design your unique mechanism which is not available in DIRECT PLANs<\/li>\n
  2. Use Combination of MFs to make investment safe against market volatility.<\/li>\n
  3. Develop your unique marketing style and educate an investor for being cool in all situation like downfall, upward trend or sideway market<\/li>\n
  4. Use calculators for planning only instead of in marketing.<\/li>\n<\/ol>\n

    \u201cPersonality begins where comparison leaves off. Be unique. Be memorable. Be confident. Be proud.<\/span>\u201d\u00a0<\/strong> \u2015\u00a0<\/strong>Shannon L. Alder<\/a><\/p>\n

    PERFECT SOLUTION FOR THIS WILL BE IN COMMING PART<\/span><\/p>\n

    Send your Feedback and Query<\/span><\/span><\/h4>\n