'Why do I need so much information - daily Net Asset Values, daily return rankings, monthly factsheets, addendums, inflow data, folio data…… I have entrusted my money to you and I expect a decent return. Why deluge me with disclosures,' they ask. Those who invest in insurance plans or company deposits may heartily agree.
But disclosure, even too much of it, is a good thing because it lifts the investor's' experience' with the product.
Spurred to action
It is thanks to the daily NAV disclosure that we know that, after this election rally, most equity funds, save half a dozen, have delivered a positive return to investors who bought them at the previous market peak (January 2008). We also know that though FMCG funds are still the top category for five years, they have been sliding in the rankings. In the last fortnight, FMCG funds were the worst performing equity category with a return of 1.6 per cent, while mid and small-cap funds made 7.5 per cent. Within each equity category too, we know that the best funds trounced the worst ones by big margins.
It is true that all these disclosures spur investors to action. So, those who 'broke even' on their investment made in January 2008 may rush to redeem their units now. Others may switch from the now lagging FMCG funds to the mid-cap funds. Investors may switch from the laggards of this rally to the top ranking funds.
While fund managers may not be happy about all this churn in their assets, it is certainly good for the industry over the long term. The daily data on fund NAVs and returns helps keep funds on their toes and helps investors vote with their feet. This ensures that over time, only performing funds and houses attract assets.
Third party rankings help investors monitor their portfolios (some would say too closely) and cash out once they make a good return. After all, market linked products can deliver choppy returns and not everyone may seek outsized gains.
All this helps to lift the overall return experiencethat investors have with mutual funds. Good or bad, investors know at all times how their MF investments are faring and can act on it.
Black box
Contrast this with the insurance industry's market-linked plans - ULIPs. With the stock markets rising, those who put money in ULIPs five years ago have probably made a good return too. But it is hard to quantify their returns. As there's no industry database on ULIP returns, it is hard to pin down how well they capitalised on this rally or even how many equity ULIPs beat the Sensex.
If you want to check on your ULIP portfolio there's no easy way to do it either. For one, there is no independent database that ranks ULIPs according to category. The insurance industry in fact is against such comparison, with many insurers claiming that their ULIPs are unique products that aren't comparable to any other because of some small variation in allocation or style.
Two, even if you are willing to patiently visit the websites of individual insurers, you may not get to evaluate how your ULIP did against its benchmark, as quite a few insurers don't offer this information. Nor can you backwork returns from the NAV, because the NAV may not factor in the expenses deductible each year.
If you overcome all this and find out that your ULIP is a terrible laggard, there isn't much you can do about it. If you haven't completed the lock in period, you cannot withdraw the cash and must leave it invested at a low rate.
All this goes to show that TMI may seem avoidable when the times are bad, but works in your favour when the times are great.
With the equity fund scorecard looking quite good today, retail investors looking to add equity allocations may automatically top up their existing investments in equity funds and start SIPs, without much prodding by the industry.
But with ULIP performance remaining a black box, and investors not informed of the returns they have made, the insurance industry may not be so lucky.
This article was originally published on June 13, 2014.
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