For the last few months, I am noticing a sharp spike in the number of ‘invest in mutual funds‘ ads on TV and print. Even though my TV viewing is limited to around 20 minutes per day, mostly while having dinner with my mom, I still couldn’t help but notice the pervasive nature of those ads. They are everywhere, almost ubiquitous. No matter wherever you go, whatever you watch, or whatever you read, there will be an ad enticing people to get into the stock market or the fixed income market through mutual funds.

Well, since the good people of this nation love their crappy prime time TV shows and news, most of the time, these ads run during the prime time, selling people the dream of easy money in the stock market. These ads make investing seem so easy; almost too easy. It is as if the ads are targeted towards the next greater fool.

The ad blitz

Anyway, after watching a few of those ads, I started to wonder what the heck is going on. Why are there so many ‘invest in mutual funds‘ ads on TV, and why are they telling only half the story about investing in mutual funds? So, I started to research to find some answers. And the answer I did find. The ads on TV are a targeted campaign by the Association of Mutual Funds in India (AMFI) to educate investors and debunk myths associated with the product. The overarching purpose, it seems, is to change investor preference and woo risk-averse investors to invest their money in mutual funds. Traditionally, Indians have been parking their money in a savings account or a bank fixed deposit, which lately, due to reduction in interest rates, have been yielding a pittance.

The ad spend

In 2018, the mutual fund companies are slated to spend ₹350 crore (₹3.5 billion) in an ad blitz to coax people into investing in the stock market or the fixed income market via mutual funds. In 2017, the asset management companies had spent ₹280 crore in advertising their products—₹230 crore in print and ₹50 in digital. Therefore, ad spend will see a 25% increase in 2018.

Wow! That’s a lot of money, and it opens up a lot of questions. How will those companies fund those ads? It will definitely not come from their bottomline. Somebody will surely have to cough up the capital to make those ads. This 25% increase in ad spend will have to come out of somebody’s pocket. Can you guess who will have to foot the bill? Most likely, it’ll be the investors of the funds, in the form of fund expenses. Furthermore, those ads had better see some new business; otherwise, it would be money down the drain, right? Hmm!!

Mutual funds sahi hai

The ads in the ongoing campaign have the slogan, ‘Mutual Funds Sahi Hai’ (Mutual Funds are right/Mutual funds are cool). Those ads will invariably feature a couple of individuals talking about money—one will be a finance noob and the other will be the one who has mastered the art of investing. The second person will be brimming with confidence and will be advising the noob to invest in mutual funds, thereby implying that it’s easy to make money in the market. One of ads has two women in a hair salon, talking about buying a car. One of them mentions how she sold a few funds to gift herself a new car. I don’t know how to respond to that, except saying, you go girl! ’twas just too easy to make some moola in the market and buy a car. I wish I had only thought of that earlier.

Investing is a cakewalk?

All the ads invariably pitch the message that investing in mutual funds is easy-peasy, kinda akin to putting your money in a savings account or opening a fixed deposit and forgetting about it. Next, you wait for the value of the fund to appreciate and then sell it to splurge on the new-found wealth. Seriously, that’s the subliminal message that those ads communicate. Yes, putting your money blindly in a mutual fund, without doing any due diligence may be easy, but so too is losing money by investing in an underperforming mutual fund. Investing in a mutual fund methodically and correctly takes a lot of effort. And, the ads never communicate that message. No better way to set people up for failure than to convey the message that investing is a cakewalk.

Yes, at the end of the ads it is indeed mentioned that, “Mutual funds investments are subjected to market risks, read all scheme related documents carefully.” However, this critical message is more of an afterthought. And by the time the disclaimer appears, the ads have already played their tricks on people’s mind and have taken them to the wonderland, where they are dreaming of making a killing in the market.

A caveman can do it…

It is my opinion that the ads should begin by stating, “This is an ad for investing in mutual funds. Mutual funds investments are subjected to market risks; hence, you should read all scheme related documents carefully. Also note that past performance is no guarantee of future results. Over time, market volatility may cause fluctuations in the value of your investments. Invest carefully.” However, they don’t. The ads go right into telling how easy it is to invest in mutual funds. The stock market is already frothy, in my humble opinion, and here they are trying to entice the gullible common men to the stock market with “So easy… a caveman can do it” like ads.

Are the ads helping?

According to AMFI, the purpose of these ads is to educate investors and debunk myths associated with the product. But are the ads achieving that purpose, or are the ads misleading the public?

In an article in Livemint, Radhika Gupta, chief executive, Edelweiss Asset Management Co., says that, “I ran a poll on my Twitter account asking people what is the one thing they are looking for from mutual funds this year and the answer was simplicity of product communication. People just don’t understand how to invest in mutual funds and our advertising isn’t helping them either. It is crucial for us to simplify schemes and explain it to investor through our ads.”

Say what now?

So, a member of AMFI agrees that the ads aren’t helping anyone. Well, maybe, the ads are not communicating the right message and are downplaying the actual effort required to invest in mutual funds? Or, maybe the investors had taken the easy route and invested in mutual funds blindly, without doing the due diligence, only to find out that many mutual funds lag the market and don’t yield the promised return or perform as advertised. Hence, it may not be as easy as, “While you relax, let your money work hard with mutual funds“—the tagline for one of the ads.

Furthermore, it’s no surprise that the ads aren’t helping people understand how to invest in mutual funds. For if they understood the right way to invest in the market, many of them, will probably say, “screw it; that’s too much effort.” Additionally, we may also need to consider that maybe it’s all by design. We should all remember that these are ads, and ads hardly ever tell the truth. Matter of fact, they are borderline untruthful. Ads are meant to woo you or seduce you into buying a product or service. For decades we have been watching the fairness cream ads on TV. We know that they do not work. Yet, the companies continue to run those ads and no authority has stopped the marketeers from publishing those ads.

Get rich overnight

Now, one might wonder, what effect are those ads having on the unknowing and the ever gullible public, otherwise known as the herd. So, here is my personal experience. A couple of months ago, I visited one of the largest public sector banks in India, to take care of an account related matter. On arriving at the floor to meet the person concerned and have my query addressed, I was surprised to see a largish crowd huddled around a desk. The people in the crowd were holding what looked like a form and were peppering a bank employee with myriad questions.

I watched the melee from the distance, wondering what is it that people are completing and submitting to the bank. My curiosity got the better of me, and I inched forward to find the answer. On closer look, I learned that the desk in question was handling requests on Systematic Investment Plan (SIP) offered by the bank, and the lady was assisting the crowd of people in getting their SIP form completed.

I paused for a moment to watch the sight unfolding in front of me. The crowd of people seemed to be in a mad rush to get the SIP started. Many of them couldn’t wait to complete their form. It seemed like they were losing money every second they were spending on completing the form. What caught my attention was the fact that most of the people in that crowd seemed to be from the bottom range of the economic spectrum, and here they were enrolling in SIP. Most of them were probably under the illusion that SIP is their “get rich quickly” scheme.

Irrational exuberance

I knew a few people in the crowd. They were the cab drivers, the roadside vendors, the vegetable vendors, etc. Basically, daily wage earners, who were now putting their hard-earned money in the stock market. I even saw a college professor joining the mad rush to get the SIP started. Irrational exuberance in display!

Next, I looked at the lady from the bank who was directing the crowd of people, even helping them to complete the form, and wondered if she had even bothered to tell them about the risks of investing their hard-earned money in the stock market. I wondered whether she had told them that markets are volatile and funds may be a stellar performer one year and be a laggard the next. If she had even told them about the expenses involved in investing in mutual funds in India, which are among the highest in the world, or if she had shared the fund’s prospectus with them.

As far as I could ascertain, she hadn’t. She was busy getting new clients for the bank, even at the expense of people who may not know what exactly they were getting into. I am sure she’ll get a big fat bonus and a promotion for the new business she has brought to the bank.

As I left the bank, I couldn’t help but remember the dot-com bust of 2000 and the financial collapse of 2008. How the stock market meltdown destroyed the dreams of many a savvy investors, forget noob and greenhorn investors. It is only a matter of time before history rhymes again, when the market swoons and throws up, and people’s wealth get wiped out or experience a huge drawdown.

Understanding risk

I’m not against investing in mutual funds. What I am against is the message that the ads subliminally conveys—”investing in mutual funds is easy.” That is simply not true, and it is wrong and unconscionable to constantly bombard the gullible public with this half-truth. If you don’t believe me saying that investing correctly takes a lot of work, then look it up, yourself. Some of the world’s foremost investors have shared their thoughts on how to invest in a stock market. And, all of them will say that only invest after doing the due diligence.

I have made money using mutual funds, but only after investing in the right mutual funds. And, I invested in the right funds only after doing the due diligence required. Think carefully before you fall for those ads on TV. They are not telling you the whole truth. You think I am making this up? Well, hear this, even the Securities and Exchange Board of India (SEBI) has asked AMFI to tune down the ad campaign as they fear that the ads can woo potential investors into buying mutual fund products without understanding the associated risk.

Investing or gambling

Furthermore, do realize that you will be investing your hard-earned money in the market. Invest carefully and don’t buy a fund blindly, for that would be gambling. And if gambling is what you like, then you had better go to Macau, Vegas or even Goa. As Peter Lynch, one of the most successful investors of all-time, has said, “People buy a stock and they know nothing about it. That’s gambling and it’s not good.” Of course, Lynch may have spoken about stocks, but the same principle applies to buying mutual fund products, too. Remember, if it were so easy to make money in the stock market, wouldn’t the entire human race be millionaires.

Finally, know that you are entrusting your hard-earned money to a fund manager. Some of those managers may not be the most trustworthy fiduciary. A few may like to gamble with your money by taking excessive risks. They have nothing to lose, as they will still get paid irrespective of whether the fund generates alpha or not. However, you may lose a lot of money if you are invested in an underperforming mutual fund. Hence, always do serious fundamental research to know what you are investing in and only invest in what you know, to paraphrase both Warren Buffett and Peter Lynch. And to do that, you will have to do the due diligence required before investing. Mutual funds are right only when chosen wisely, not blindly; please don’t make the mistake of doing the latter.