Trading in Mutual Funds! Say NO

This goes to show that if B made gains of 21% per annum, he would be better off than A.

Here, a couple of factors need to be highlighted.

1. There is no guarantee that the aggressive distributor will get you profits of 10% each time. He could err on the timing of the purchase, the sale, or even both.

2. More important, the only person to make profits in the aggressive investor model will be the distributor!

Notice the entry load paid by the investor in the former case, ie 7.2%? Most of this is the distributor’s earnings.

So at the end of one year, in the above example, A and B made almost identical returns. But have a look at the table below:

I rest my case against churning, or what is popularly called 'profit booking'. That term apparently is for distributors and does not include you, the insignificant investor.

Money Matters Mantras

• Equity investment is for the long-term
• Switching in and out of schemes may be justified if done for the right reasons (like change of fund manager, underperformance of scheme in the long-term).
• Ask questions when your distributor recommends profit booking too often.
• Question your distributor whether he can get exit calls right each time, time after time: if he can, is he caught in the wrong profession? (He ought to be the fund manager)

- Lovaii Navlakhi