on a SIP of ₹5000 / month over 25 years assuming a 15% CAGR return, your friendly harmless adviser will pocket a whooping sum of Rs 28,00,000 (28 lakhs)
Barring a few (who time the entry and exit based on either momentum or value), all other mutual fund advisers earning trail commissions are leeches
Yes, you read that right, LEECHES , you know those parasites who suck the blood of very host they live on.
Let me explain.
These set of jokers advise their client to, BUY and HOLD, come what may, continue your SIP in good days and bad, up and down , summer and winter.
The whole premise of this advise is to keep averaging while the upward bias undercurrent of equity catapults everyone in the long run.
and for this buy and hold parroting service, they charge a trail commission. See the first para to get an idea of blood sucking we are talking about.
But there is a PROBLEM, a BIG ONE.
and it has HIDDEN IRONY in it.
The problem is the assumption that by throwing a bit of behavioral finance thaler giri (Richard Thaler) , they can ‘Nudge’ retail investors to become STOICS and withstand a drawdown of 50–60–70% from the peak, and not only that may be “add more”.
This is a JOKE. And here is the IRONY.
For once let us presume that you are that 1% of the population possessing that STOIC like demeanor to take that kind of HIT in your stride and not be affected by it.
Is it not fair to assume that some one who is that ‘RATIONAL’ would also be “Intelligent” enough to know the power of compounding and blood sucking trail commission that these jokers are earning !!!!
Let me go a step further, why would such a rational person be averse to direct stock market investment.
The usual excuse that I get on this is that professional retail does not have time to handle their finances.
To which I have 02 suggestions. If you have 1 hour per month for your finances, simply run what we do here at MysticWealth. Run a dual momentum between your chosen equity fund and debt.
One decision per month will change your equity curve from a buy and hold baloney to something meaningful.
and suggestion 02 if you don’t even have that 1 hour. Find a fee based adviser for god’s sake or buy directly on COIN.
You see, it is all about incentives. I have said this before and i will say this again. If your salary depends on killing someone, you will find yourself in a pool of blood with dagger in your hand.
All this happens at a sub-conscious level. If the agent is given enough trail commission, he will consider Buy and hold to be EPIPHANY from GOD.
and that is my last point, don’t think that Mutual funds are not party to it. When you create such an incentive structure, you invite such behavior.
If a mutual fund is not responsible for its draw-downs, and adviser is paid on trail commission, where does the buck stop.
The story continues after each cycle of boom and bust, new set of bakras get ready to be butchered by the cartel.
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Disclaimer: My bad if I have offended anyone at a personal level, that was not the intention. I don’t have any personal animosity with any one.
These are my views and i reserve the right to be wrong and biased.