The calendar year 2018 was particularly bad for equity markets. While various analysts are giving different figures of the gains or losses in the equity markets, the main point is that those who invested either directly in shares or through equity mutual funds lost money. Morningstar reports
(https://www.morningstar.in/posts/50281/mutual-funds.aspx Date 2 Jan 2018) the following gains/losses of equity mutual funds in 2018:
1-Year Returns of Equity Mutual Funds in 2018
| Fund Category (Equity, Growth, Regular) | Percentage 1-year return (2018) |
| ELSS | – 6.56 |
| Mid-cap | – 9.39 |
| Focussed | – 5.62 |
| Large and Mid-Cap | – 7.61 |
| Large Cap | – 1.94 |
| Multi Cap | – 5.74 |
| Equity – Other | – 8.00 |
| Global | – 5.98 |
| Value | – 9.69 |
Negative Returns in ALL CATEGORIES
There has been no gain in a single mutual fund category. The percentages given are the average for the category, within each category there may be funds that have shown a positive return. for example in Large Cap, Axis Long Term Equity gave the best returns and its NAV rose by 2,68 %. In the Large and Mid Cap Category, Sundaram Large and Mid Cap gave the best returns, it was 0.49 %. In all other categories, the best return was also negative. So much for making money by investing in mutual funds!
Volatility Kills Returns
The main reason for the low returns is that towards the end of 2018, the share markets went down, and during the year there was a very high degree of volatility (i.e. share price fluctuations). Investments which are not prone to volatility, even though they give a lower return per annum, will in the long run give more returns than investments that are volatile in nature. Read And the Tortoise Wins in this Blog to get an idea of how this happens.
Tell Your Customers About the Risks of Investing in MFs
Those selling life insurance should highlight the risks that are inherent in share investment and mutual fund investment. Taking a risk on the investment is the investor’s choice. If the customer wants to invest in a risky investment after being educated on the risks, the choice is that of the customer. But in today’s market the customer is being told that it is perfectly safe to invest in mutual funds. This is a fraud.
We know that more than 90 % of all investments of Indians is in low risk (Read This is a Fact not an Opinion). So when you highlight the risks in an investment to your customers, most customers will opt out of the risky investments. Most customers will want a financial plan that protects their money. They would not like to invest in a plan if they are sufficiently educated on the risks of investment. The customer also wants to make long term, low risk, non-liquid investments (Read The Layman is a Prudent Financial Planner). 35 % of all savings is in life insurance and provident fund. So you have a ready market where 35 % of all savings is being invested in low risk, low liquidity and long duration. Sell life insurance endowment for the strengths that it possess – it is low risk, ;low liquidity, and long term. For 35 % of the money being saved, there is a complete match between what the market desires and what life insurance endowment offers. Tap this market.
Highlight the Risks. Leave the returns alone
Returns are Uncertain. Risks are definite
Sell Risks Not Returns