Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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A lie by your stockbroker

Posted by Muthu on December 7, 2010

I asked my wife last week about my blogs. Though she had some good words for its content, she was not pleased with the size of the postings. She also asked me as to why I keep saying that I would reduce the size of the posting but still continuing with long posts.

Valid point. Would see if I can reduce the length of the post by 1/3’rd or 50% . She has reaffirmed what I’ve been thinking for quite some time. It would be easier for readers, if the posts are not too long.

Also for no reason remembered the late Tamil writer Sujatha’s saying that no man can be a hero to his wife!

As per the latest data, the average monthly income of an Indian is Rs.3750/- a month. Also do not forget the fact that around 77% of Indians are earning only Rs.600/- a month. The average number does not convey the depth of our poverty.

Even with Rs.3750/- a month, how someone can survive in a city like Chennai?

I saw one real estate company offering above 14% returns on a 3 year fixed deposit.

Some advisors are now in the business of selling fixed deposits from less known companies offering high interest rates. This is because the commissions offered to these advisors are very good.

What is good for a croupier need not be good for customers.

Fixed deposits from private companies carry default risk and invest in them only if their credit rating is good. As a thumb rule, someone having a good credit rating would not offer higher interest.

Only a company which is unable to get good credit rating would offer higher rates, to sell their lesser quality wares.

Stock brokers have now started asking investors to demat their mutual fund units. 

They are singing the benefits of holding the mutual fund units in a demat form urging them to open a demat account.

First and foremost, you as an investor need to know one important thing.

Your mutual fund units are already held by AMCs (Asset Management Companies) in the demat form. What you receive from a mutual fund is not a unit certificate but only an account statement.

So stockbrokers’ saying that they would dematerialise something which is already dematerialised is one big lie.

It is the question of merely changing the depository participant and the account number, thereby lining the pockets of your stock broker.

A mutual fund is not a stock broking or a trading product. It is an investment product.

Paying commission to a stock broker for every transaction, demat transaction charges, annual maintenance charges are all unnecessary for a mutual fund investor.

Also a stock broker is genetically coded for trading. He is more than capable of making an investor into a trader.

He would ask you to keep entering and exiting different funds at different market levels so that he can merrily make money out of you. A stock broker and long term investing does not go well with each other. A stock broker hates the words ‘long term’ and would like to remove it permanently from an investor’s dictionary.

If he is going to talk about consolidation of holdings, tell him that AMFI (Association of Mutual Funds of India) is already working towards providing a statement of consolidated holdings for all mutual fund investors. This has been mentioned in the current issue of ‘Outlook Money’ also.

CAMS has already been sending statement of consolidated holdings.

Even now many websites offer you free services for creating, updating and monitoring your consolidated portfolio. It would not take more than 15 minutes of work every month.

There is no concrete talk yet by the regulator for providing advisors an online platform for mutual fund transactions. So it is premature to talk about online transactions. When it happens, we would make use of that facility for executing your transactions, if you choose to.

Even then we would not advise you to open a separate demat account unless it is made compulsory by the regulator.

Given the lack of penetration of mutual fund products and the costs associated with opening and maintaining of an individual demat account, I do not think the regulator would be in any hurry to make opening an individual demat account for holding mutual fund units compulsory.

So do not listen to your stock broker when he speaks about demating your mutual fund units. I repeat there is no point in demating something that is already in demat form.

It is just the beginning of his trading game.

2 Responses to “A lie by your stockbroker”

  1. H Lakshmi said

    Hi Muthu,

    Excellent article. Good Work, keep it up

  2. S.Anbarasu said

    Dear Muthu,

    I am a regular reader of your articles here and never find anything useless or lengthy something like that.I usually read investment related articles in different websites, still I feel i am getting valid information from your website. Please go ahead.
    Thanks,
    S.Anbarasu

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