Too much choice is not necessarily a good thing Thursday, Jul 25, 2019
21 year old Aman was super excited when his first salary ever got credited last month. He intended to splurge it on his favorite things. But paying heed to his parents, he sensibly decided to invest a part of it in an equity mutual fund scheme. A good start for a young graduate I must say. But this was the easy part.
What came next really staggered him. He had to choose a scheme (or two) from a universe of over 400 equity-oriented schemes!! No wonder he was confused and undecided as to which scheme he should choose, and eventually didn’t land up investing at all.
This is a textbook example of decision paralysis caused due to too many choices. Let me explain.
Intuitively, it would seem that having a large number of options should mean that people could ultimately make a choice that they were happy with. In practice, however, too many choices with a variety of pros and cons can make it very hard for people to choose among them. As a result, decision making gets stalled or paralyzed.
And even if Aman had zeroed down on a scheme and invested in it, it wouldn’t be long before he decided to exit the scheme and invest in a “better” one. This behavior is observed because the more options there are, the easier it is to regret anything at all about the option we choose.
The below data about investor behavior is somewhat proof of this:
Average holding period of Equity mutual funds at the end of March 31st 2019
|less than 1 year||39%|
|1 to 2 years||29%|
|more than 2 years||32%|
Clearly Indian mutual fund investors move in and out of equity schemes too often. And this counterproductive behavior could hurt their investment outcomes. But what could be leading to this behavior?
Going back to the example. What had made Aman choose equity investing through the mutual fund route? Maybe because he had no time, inclination or expertise to analyze and select stocks, and wanted to outsource the same to experts. But with the vast number and variety of mutual fund schemes available these days, choosing a scheme itself became a complex decision, making him directly or indirectly responsible for his investment outcome, something he wasn’t equipped to do.
So what can an investor do when he doesn’t have the time or inclination or expertise to select mutual funds? Well, he could hire a mutual fund house to select them for him.
Yes, that’s really possible now - with the Quantum Equity Fund of Funds (QEFOF). The only one of its kind in India, the fund invests in other diversified equity schemes, saving you from the complex, yet critical task of choosing quality, consistent funds for your equity investments.
What exactly do we do?
The fund invests your money in 5-7 diversified equity schemes based on extensive qualitative and quantitative research. Not only are these schemes subjected to hard core number crunching and detailed analysis, but they are chosen only after gaining valuable insights from one-on-one interactions with the fund managers themselves, something that investors don’t have easy access to.
How does the fund add value to your portfolio?
When we professionally and in an unbiased way choose a basket of equity funds for your money to be invested in, the risk of wrong selection of funds is reduced. Single manager risk is also eliminated as your money is exposed to diverse fund management styles. You can gain exposure to a basket of 6-7 different equity schemes with a mere 500 rupees. The QEFOF also reduces the hassles of making and tracking multiple investments. A single NAV is all you need to check .In fact the fund can rebalance and reallocate your money from underperforming schemes to better performing ones more efficiently than you. This is because as a pass through vehicle, a mutual fund doesn’t have to pay tax when exiting a scheme. This benefit is passed on to you and eventually translates into higher returns.
How much do we charge for our service?
Direct plan of QEFOF has a total expense ratio of 0.51%, and including that of the underlying schemes is 1.51% (As on 31st March 2019). The expense ratio includes Investment Management Fees and Operating cost of the Scheme. Thus, the fund charges the investor only 51 basis points to research, select, monitor the equity investments, including scheme operating expenses, keeping investor interest first at all times.
Similarly, Regular plan of QEFOF has a total expense ratio of 0.75%, and including that of the underlying schemes is 1.75% (As on 31st March 2019).
What makes QEFOF different?
We are the only Equity Fund of Funds in the country which invests in a bunch of other equity schemes. As per our research, these are the finest available equity schemes from fund houses other than Quantum, thus eliminating any conflict of interest.
Lastly, how is the fund taxed?
In spite of being an all-out equity fund, the QEFOF is taxed like a debt fund in India. However, this shouldn’t be a hindrance for a long term investor as long term equity gains are now taxed at 10% with annual exemption of 1 lac, and long term gains in debt funds enjoy indexation benefits, unlike equity – bringing the two almost at par. (Click here to read this article by Quantum AMC to understand more about FoF taxation)
I hope Aman reads this, and employs a fund manager to select other fund managers that are capable to handle his investments. And I hope he trusts the Quantum expertise in his endeavor to do so.
|Name of the Scheme||This product is suitable for investors who are seeking*||Riskometer|
|Quantum Equity Fund of Funds|
(An Open Ended Fund of Funds scheme Investing in Open Ended Diversified Equity Schemes of Mutual Funds)
|• Long term capital appreciation |
• Investments in portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI whose underlying investments are in equity and equity related securities of diversified companies
Investors understand that their principal will be at Moderately High Risk
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.
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Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.