Thread by @passivefool

HDFC makes over Rs 400 crores in fees (direct plan) from just two of Prashant Jain's schemes. And then add another Rs 300 crores odd as commissions in regular plans.

All this for underperforming Nifty 50 by 4-5% in the last 5 years.

Being a large AMC is a license to print money. After a while stories and fund manager cults dwarf brute numbers and facts.

85% of industry AUM is in regular plans. By my guesstimate, over half of the AUM is not getting the right advice or worse yet is being scammed into useless costly funds.

Costs matter in mutual funds but nobody cares.

This is precisely the reason why active giants offering index funds a d ETFs will never end well in my view, I hope I am wrong.

The ironic truth is that index funds are subsidized by active funds margins. And I wonder what happens when there is a strong shift to low cost funds and money flees active funds like it has in the US.

Costs have remained stubbornly low but in India like the US, we don't have iShares and Vanguard. So, will costs remain low for Index funds? I wouldn't bet on it.

Inertia is the biggest advantage moat for AMCs. The fact that people hate changing things and doing things means they get to keep selling garbage and retain their 30-40% margins.

Now at the aggregate industry level, some 8 lakh off cores was in equity funds, if I am getting my numbers right. How much of this money is earning it's keep? Over 60% of the money doesn't keep up with Nifty50.

And add this the fact that expense ratios of schemes have been slowly inching up. I think this has to do with the fact that equity flows are going to the toilet and AMCs have to protect their margins

But my gut says just like 2008 broke the dam and killed the myth of stock picking geniuses, manager cults, downside protectors in the US, a deep and prolonged market crash is going to damage the story.

The best thing you as an investor can do is look at your account statement and figure out how much you are paying in commissions.

If you are paying commissions for an advisor and are receiving benefits proportional to them, God bless you. But these advisors are extremely rare and I had taken a stab here as to why
nakedbeta.com/musings-rants/…

Although every fee model has it's flaws, this pay a % no matter what happens is an eggregiously flawed model.

At the very least there should be a variable fulcrum fee model in funds. Pay less for underperformance and mm normally for outperformance (if any)

But the fact that investors don't care about costs and performance vs India growth story webinars means that the AMCs will make a killing

Your star fund manager thanks you for those Diwali bonuses.

Every year investors are literally peeing 6000 to 8000 crores in commissions for a new normal webinar email and a don't stop your SIP notification

And then add the bait and switch here. One fund underperforms, launch another, if that does too, launch an ESG fund, of that underperforms, launch a quant fund, or that underperforms, launch a quant ESG Premier Padmini fund

If that underperforms, launch a FOF of all those funds. Keep launching pointless funds to confuse the investor and entice him to make mistakes to keep them commissions rolling in

The end and I hope this was ESG compliant.