From an investor's perspective, social media is at best a mixed blessing. While there are a lot of interesting and useful ideas to be found by following the right people on Twitter and Facebook, WhatsApp forwards are a different kettle of fish. There's a huge amount of activity of passing around stock-trading tips of mysterious origin. Unlike SMS, WhatsApp is also impossible to trace in terms of regulatory action. The end-to-end encryption means that there is no way to intercept messages. That should please the privacy cheerleaders but it does make it easy to run tip factories.
Given all this, I was pleasantly surprised when I received an investing-related WhatsApp forward which, instead of being a stock-punting tip, was a (mostly) sensible message encouraging readers to invest in a balanced fund for a long term. Here's the original message, only slightly edited for brevity:
I've given the original so that Hindi readers can get the real flavour of the message. In English, here are the points.
Invest in Reliance Regular Savings Balanced Fund. Invest Rs 10 lakh and start getting Rs 7,500 a month or Rs 90,000 a year. If you want to accumulate wealth, you'll get Rs 19 lakh after 5 years; Rs 33 lakh after 10 years; Rs 1 crore after 20 years; Rs 25 crore after 25 years. 12% yearly return. No tax, no TDS, entire sum tax-free. Returns as of September 1: 1 year - 17.94%. 3 years - 14.24%. 5 years 18.35%. From beginning - 14.52%.
Are these claims true? Well, yes and no. The message says that you will get 12 per cent returns. The future projections are based on returns ranging from 13.7 per cent for five years to 12.2 per cent for 20 years. The 25-year return is plain wrong - the message says 25 crore whereas it should be 2.5 crore. However, apart from this, nothing is absurdly wrong. This is a refreshing change from the hyperbole that is normal under the circumstances.
However, that doesn't mean that the message is an example of truly responsible financial selling. There are a number of serious issues in the message. Firstly, it implies - in fact, more or less states - that the rates of return stated are steady. This doesn't really matter for the cumulative projection but becomes hugely misleading for the regular income projection. For the last ten years, these are this fund's annual return percentages: 49.61, -36.03, 75.74, 22.11, -19.27, 33.86, 3.52, 43.2, 8.73 and 4.2. The average is an impressive 18.6, but there's nothing here that suggests a product capable of providing a regular, predictable income. That's nothing specific to this fund. As every reader of Mutual Fund Insight knows, this is normal for equity and equity-oriented balanced funds.
Or is it? Actually, if you follow the method that I've always recommended, then you can have a great regular, inflation-proof, tax-free income from any such fund. Just invest gradually through an SIP. Then, from about year two or year three onwards, start withdrawing no more than 4 per cent of the value every year. Your money will sustain almost forever, and you will have a predictable income that rises with inflation.
However, you already knew that, didn't you?