Quis Custodiet Ipsos Custodes | How your Returns get Reduced by some Investing Practices | ETMONEY скачать в хорошем качестве

Quis Custodiet Ipsos Custodes | How your Returns get Reduced by some Investing Practices | ETMONEY

In this video, we examine some of the current practices of the investment industry that, purposefully or accidentally, ends up reducing the returns that investors can make. We’ll further offer some strategies that one can employ to avoid some of these not-that-friendly activities What’s covered in this video 00:00 Introduction 01:33 Incentives 03:20 Fee Structure 05:29 Short Term Returns over Long Term Growth 07:19 Window Dressing 08:48 Closet Indexing 👉 Resources mentioned in this video ► Video on different mutual fund risk measures like Alpha, Beta, Sharpe ratio etc. (   • How to Measure Mutual Fund Risk | Alpha, B...  ) ► Article by Tom Coutts (https://insight.bailliegifford.com/da...) 👉 INCENTIVES The result one expects from a fund manager is to achieve a superior performance on the money invested. In effect, you want the fund manager to be putting in the adequate hours in tracking, researching and identifying the best opportunities for growing your money However fund houses often incentivize fund managers to acquire more assets thereby pushing them to expend their energy and time in investor roadshows, presenting to institutional investors and start a series of close-ended funds 👉 FEE STRUCTURE A scheme’s expense ratio is charged as a percentage of the market value of units one holds. This means while the fund’s rewards are guaranteed, the investor is the one who ends up bearing the fruits of an uncertain outcome One view is for fund houses to only charge a low base fee which can cover the necessities, which is then supplemented with a performance fee Hedge funds a known to work on a 2/20 structure. This means they get paid 2% of the AUM as their base fees and a performance fee which is 20% of the profits earned above a pre-defined threshold 👉 PRIORITIZE SHORT TERM RETURNS OVER LONG TERM GROWTH Most investors seek performance in the short term which then forces fund managers to focus on the next quarter rather than creating wealth over the next decade. And this myopic approach is seen everywhere incl. in a company’s quarterly reporting, valuations by equity analysts, institutional investors and ofcourse, fund managers As an investor, your options include: a) investing in long duration instruments like ELSS, retirement savings funds and NPS b) invest in funds which are structured to attract only long term investors 👉 WINDOW DRESSING Window dressing is a strategy that is aimed at improving the appearance of a fund’s performance without actually improving the fund’s performance. Some ways in which this can be done include: a) Exit the bigger loss-making stocks so as to not explain these at the quarterly investor meeting b) Buy some recent winners right before the quarter ends to make the portfolio look very attractive c) Boost a fund’s returns in the short term like invest in stocks that does not meet the fund’s investing style 👉 CLOSET INDEXING Closet indexing is a strategy used to describe funds that are actively managed but have a portfolio construct that is not very different from the benchmark they are chasing. It’s like a large cap fund having holdings and weights that are not much different from the NIFTY 50 Fund managers might do this to lower the risk of underperforming the index although this approach also kills outperformance. And that’s why closet indexing is looked upon negatively The R-Squared is a statistical measure that can be used for detecting if closet indexing is happening on your fund or not #ETMONEY #windowdressing #returns #mutualfunds 👉 To invest in Direct Plans of top Mutual Funds for free, download the ETMONEY app: https://etmoney.onelink.me/unJQ/5ca1ae3b 👉Read more such informative articles at https://www.etmoney.com/blog 👉 Follow us on: ► Facebook:   / etmoney   ► Twitter:   / etmoney   ► Instagram:   / etmoney_official   ► LinkedIn:   / et_money