Author: shyam

John Hussman says the only basis for further Fed action is superstition in the absence of either fact or theory.

Effective policy acts to relieve some constraint on the economy that is actually binding. Effective policy has some “transmission mechanism,” where changes in the policy target can be expected to translate into decisions that improve the allocation of resources and the level of activity in the economy. Effective policy is also preferably grounded in historical evidence that supports its effectiveness, or at the very least does not contradict the action. At present, the policy menu advocated by Ben Bernanke has none of these advantages.

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There a mind-boggling number of mutual funds operating in India. According to the AMFI, there are about 42 fund houses, offering more than 4500 funds! They span equities, fixed-income and hybrids with a whole host of options available for pay-outs, tax-planning, etc. With so much on offer, one would think that there must be a solid value proposition that allows so many players in the market.

However, it appears that most mutual funds in India underperform their benchmarks! According to a June 2011 study by CRISIL:

Among equity-oriented funds, majority of large cap and diversified equity funds underperformed their benchmark indices, viz, the S&P CNX Nifty and the S&P CNX 500, respectively, in all three time periods of analysis (1, 3 and 5 years).

In case of equity-linked saving schemes (ELSS), majority of funds have underperformed the
benchmark S&P CNX 500 over the 3 and 5 year time frames. The ELSS category (investments are intended for tax saving and typically have a 3-year lock-in) witnessed 57% and 65% of the funds underperforming the benchmark S&P CNX 500 over the 3 and 5 year time frames, respectively.

Here’s a snippet from the report:

So the question remains: why are investors paying asset management fees to fund-managers for under-performing the benchmarks? Why not invest in ETFs where you are at least tracking the market (at a much lower fee)?

Source.

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