Dear investor, you don’t have to run a mutual fund on mutual funds

livemint.com:

Tenth Avenue Freeze-Out. I am sipping a cup of black coffee and just doing nothing. A state I want to continue existing in (I was until I had to start writing this).

As the American poet Robert Frost wrote: “The woods are lovely, dark and deep. But I have promises to keep." And deadlines to meet. And rent to pay.

And money to make. These are the days when I hate my ancestors. Why couldn’t I have won the ovarian lottery? Sometime back, a friend sent me his investment portfolio of mutual funds (MFs) to look at.

The first thing I noticed was that his investment adviser had made him invest in 30 different equity MF schemes. His wife’s portfolio had 17 different equity MF schemes. I didn’t go any further.

The couple was running a mutual fund on mutual funds. This happened because their adviser had sold them many new fund offers (NFOs)—or new equity schemes. Essentially, there are two problems in investing in many equity MFs: practical ones and logical ones.

Let’s say you have invested in many MFs and, god forbid, something happens to you. Imagine the problem your nominee is likely to face when they need to sort out everything. There is another practical problem, albeit something that someone who has invested in one too many equity MF schemes isn’t really going to bother about.

How do you keep track of the performance of so many schemes? If you bought these schemes through an app or an online platform, you would get the details at the end of every day. Even individual MF agents now send regular statements showing the value of the MF investments made. But that’s just the performance of the overall investment.