Changing Indian Mutual Fund’s serious disclaimer to a more humorous one…

Dhirendra Kumar of Value Research again does a great job of thinking thorough basic investment matters. Despite the best intent the current Mutual Fund investment disclaimer is serious and non-attractive:

Mutual Fund investments are subject to markets risks. Please read the offer document carefully before investing.

Market risks? Offer document? And above all read? It has three things which would scare most investors.

The idea is not to remove but to try and make it more readable. He quotes from an American version:

And here’s the equivalent statement of an American fund from around the year 2000, which I found via the blog of Jason Zweig, who writes wonderfully about personal finance in Wall Street Journal. Without further comment, with some editing for length:

First of all, stock prices are volatile. Well, duh. If you buy shares in a stock mutual fund, any stock mutual fund, your investment value will change every day. In a recession it will go down, day after day, week after week, month after month, until you are ready to tear your hair out, unless you’ve already gone bald from worry. It will insist on this even if Gandhi, Jefferson, John Lennon, Jesus and the Apostles, Einstein, Merlin and Golda Maier all manage the thing. Stock markets show remarkably little respect for people or their reputations.

While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 – 4 years. It goes with the territory. Expect it. Live with it. If you can’t do that, go bury your money in a jar or put it in the bank and don’t bother us about why your investment goes south sometimes or why water runs downhill.

Aside from the mandatory boilerplate terrorizing above, there are risks that are specific to the IPS Millennium Fund you should understand better. Since most people don’t read the Prospectus (this isn’t aimed at you, of course, just all those other investors), we thought we’d try a more innovative way to scare you.

We buy scary stuff. You know, Internet stocks, small companies. These things go up and down like Pogo Sticks on steroids. … While we try to moderate the consequent volatility by buying electric utility companies, Real Estate Investment Trusts, banks and other widows-and-orphans stuff with big dividend yields, it doesn’t always work. Sometimes we get killed anyway when Internet and other tech stocks take a particularly big hit. The ‘we’ is actually a euphemism for you, got it?

Received Wisdom can turn on a dime in this business, and when that happens prices fall off a cliff. Even if we were really smart and stole these companies, if their prices run way up we are still as vulnerable as if we were really dumb and paid that high a price for them to start with. … Just so you know. Don’t come crying to us if we lose all your money, and you wind up a Dumpster Dude or a Basket Lady rooting for aluminum cans in your old age. Please e-mail us if we haven’t scared you enough, and we’ll try something else.

Both the above disclaimers–the dull Indian one and the funny American one–are equally correct, of course. However, only one of them is actually useful in communicating any kind of fundamental truth about investing. No prizes for guessing which one. Of course, no prizes also for guessing that the American fund which issued this disclaimer never managed to collect much money from investors. After all, telling the plain, hard, uncomfortable truth is so unusual in the financial services business that investors wouldn’t really have responded to this kind of a statement.

It is way too long as well. However, it has a concise lesson as well:

But the truth is that if you invest in equities or equity mutual funds, then you should print out this disclaimer and pin it up on a board. There are two aspects to what it says. Both are summed up in the sentence ‘While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 – 4 years’. Every equity investor must take this to heart.


2 Responses to “Changing Indian Mutual Fund’s serious disclaimer to a more humorous one…”

  1. gcmediain Says:

    Interesting read on “Mutual Fund investments are subject to markets risks. Please read the offer document carefully before investing” this line we keep on hearing on TV & radio like a sprint race is going on.

    Similarly If you love to know how Facebook could work as a brilliant advertising medium when used in a right way in social media marketing. Pls do read this, & give us feedback on it.

  2. Swaminathan Shivakumar Says:

    Very true…

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: