Why have the Mutual Funds failed ?


That may be an intriguing question. Have the MFs failed ? Do I mean in terms of performance ? Do I mean in terms of the market share as an investment product ? Do I mean in terms of acceptability by the investors ?

Mutual Funds India

I am definitely not talking in terms of performance. Good or bad, that is not what I wish to discuss at this point. My question is basically in terms of the “market share” and the “investor acceptability”. Given the concept and its potential to be the preferred mode of investment for the common investor – the small investor who does not have the inclination to put much of his time into his investments, MFs have definitely not garnered enough AUMs from 1994 to now. Take out all the liquid fund assets owned by the corporates and the HNIs; what are you left with ?

mutual funds

There could be many reasons for this : lack of awareness, investor immaturity, risk aversion, remoteness from urban centres, poor marketing, mismanagement by the fund houses, messing up by the regulators, etc. I shall visit some of these at some other time. Today I would like to focus on a more basic problem : the mismatch between the goals of the investors and those of the investment managers.

A pertinent question that may be asked is, therefore, is the investor finding that her goal in investing in a particular fund, is not being achieved as the investment manager is chasing a different goal ? Is this what is driving the investors away from MFs, and towards either more conventional (less risky) or more unconventional (more risky) investment options ?