Who is Dr MFD
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The MFD is like a doctor. If a patient comes with a stomach infection, the Doctor will prescribe a suitable medicine
Likewise if an Investor who is 50 years old approaches an MFD, the MFD needs to prescribe like a doctor a suitable fund
Like the doctor does not discuss the ingredients involved in the medicines, there’s no need for an MFD to discuss the ingredients of the fund (stocks and sectors)
The focus has to be on the problem and the treatment
The Pharma company makes the drugs and the Asset Management company makes the products
As a patient we have been conditioned to focus on the doctor and his consultation
The Doctor’s Responsibility is to diagnose and write a prescription
The Prescription is nothing but a Suitability Note ; which medicine will suit the disease
In our minds that is what is the doctors job
That piece of paper (the Prescription) means everything to the Patient
Rarely does one get deep into medicine analysis
And ask the doctors questions like what other brands of medicines are there and why is he prescribing this medicine and not that
Seldom a patient will ask what is efficacy of one brand vs another and so on
The doctor is not expected to keep documents about the past performance, & legacy of the medicines
The same should actually apply to MFDs and their investors
And this is the right way to go about
But we have some over smart investors (patients) who are more interested to know about the portfolio and the stocks than trusting the MFD
Every medicine packaging mentions the chemicals and molecules involved in its manufacture
How many times have you ever done a Google Search with regards to the ingredients involved in the prescribed medicine?
However some over smart investors aren’t happy with the recommended investment schemes
They want to know about the various sectors and stocks involved in the portfolio
They also want to know how the fund manager manages the Portfolio, how he changes sectors and stocks
The focus is more on the ingredients than the bringing together of the various ingredients in the form of a packaged scheme
Discussing & commenting on the Stocks of the Scheme Portfolio isn’t really a part of an MFDs scope of work.
As per SEBI guidelines an MFD has to map suitability of a fund with investor’s needs
That is the real scope of his work
Needless to say the subsequent service needs of the investor too is a part of his job
To understand why the MFD need not delve into the stocks that build the portfolio we need to understand one very important thing
And that is from where does the MFD get his or her inputs from?
The answer to the above question is that they get it from the Manufacturer (AMCs)
And AMCs are not allowed to discuss stocks as per regulation
If you persuade them they will reflect upon the sectors (macro) at the most
Even the mandate for CFPs is not to discuss stocks but focus on the Financial Plan and the Portfolios that will suit the needs of the investors
If the MFD were to discuss stocks then it will be seen as going beyond the scope of his or her role as defined by the regulator
The reason the regulator does not allow this kind of loose stock based discussions is because they do not want intermediaries to masquerade as Fund Managers
Because this leads to unwanted speculation and excessive portfolio churning which is not desirable for long term investors
Too many loose canons in the market will cause more pain for investors
No MFD can ever be better than the Fund Managers
In hindsight investors see outcomes which never tell the real story of risk
The Investment and Risk Management Strategy has to be decided before making the investment based on the Clients Age and Risk profile whatever be the outcome
We then have to stick to the strategy for a couple of years and allow it to play out.
To disturb the strategy is unwarranted
To react to stocks and market outlook is going down the speculation lane
This is undesirable from an Investment Perspective
Risk is not about Outcomes that One Encounters. It is about Planning before Embarking upon the Investment Journey
Just because Equity Returns were massive during a specific year (this is the outcome) does not make them safe to jump into any time
It is like saying that just because I walked through the forest without coming face to face with any wild animal, does not mean those animals don’t exist in the forest
Therefore the desirable behaviour is to stick to the Suitable Product (Mutual Fund Portfolio Schemes) and allow it the requisite time for it to work
Even the best medicines have to run their course before they work and are discontinued or changed if necessary
I rest my case
