All posts by Sarthak Patel

About Sarthak Patel

Sarthak Patel is a dedicated and accomplished wealth manager at UpperCrust. With a strong foundation in financial expertise and a passion for helping individuals achieve their financial goals, Sarthak has also cleared the NISM Investment Advisor Level 1 and Level 2 exams.

Exploring the Pros and Cons of Finfluencers: Empowering Investors with Knowledge and Caution

Exploring the Pros and Cons of Finfluencers: Empowering Investors with Knowledge and Caution

13 July 2023 3 min read

Introduction

Since the launch of Jio in 2016, data prices in India have become extremely affordable, leading to a significant increase in internet usage across the country. Prior to 2016, the average Indian used only 0.8 GB of data per month. However, with the advent of cheaper data plans and the widespread availability of smartphones, the average data usage has skyrocketed to over 15 GB per month. It is worth mentioning that a significant portion of this data consumption is attributed to video content. During the past few years, the Indian capital market has experienced remarkable growth despite facing various challenges. The market has witnessed periods of volatility, including the COVID-19 crisis, which caused a sharp decline followed by a remarkable recovery. Additionally, there have been periods of relative stability, with the market remaining stagnant for around 1.5 years. However, it is noteworthy that the Indian market is currently trading at an all-time high level.

Throughout this period, numerous finfluencers have emerged in India, garnering immense popularity and amassing millions of subscribers. Their influence has contributed to shaping the investment decisions and perspectives of a vast audience across the country.

Impact of Finfluencers on Investors

Finfluencers play a significant role in shaping the investment decisions of retail investors and young individuals. Through their articles and content, influencers cover various financial topics such as the stock market, mutual funds, personal finance, insurance, and F&O. Their primary focus is on educating investors about major market events and related subjects. In India, many influencers have made commendable efforts to provide financial education and create awareness about investment products like the stock market, mutual funds, and F&O. As a result, investors have placed their trust in these finfluencers, leading to a surge in SIP investments and the opening of demat accounts.

While some finfluencers genuinely aim to educate and assist investors, there are others who promote and sell products such as insurance policies, demat accounts, subscriptions, and Telegram groups. They often include links to these products in the comments section and video descriptions. Many viewers are enticed to purchase these promoted products, join Telegram groups, and even open demat accounts. However, concern arises when influencers delve into complex topics such as stock analysis or F&O without possessing in-depth knowledge. In their attempt to cover these subjects in brief 10- to 15-minute videos, the information may not be fully comprehensible, and blindly following their advice could potentially lead to financial losses.

Finfluencers’ Paid Promotions: Is It a Good Practice?

It is acceptable for finfluencers to promote products, courses, or other offerings as long as they transparently clarify that it is an advertisement. However, considering the large following of influencers, it is crucial for them to ensure that they are not solely promoting products for monetary gain. Investors who trust and follow influencers can be directly influenced by these promotions, which can have a direct impact on their investment decisions. Some finfluencers also encourage viewers to join Telegram groups where they provide stock tips, F&O tips, or promote insurance policies that may not be suitable for everyone’s financial situation. As a result, investors may incur financial losses due to these advertisements.

On the other hand, many finfluencers also promote beneficial products that genuinely help investors. These may include books, audiobook apps, demat account links, courses, and other resources that assist individuals in making informed financial decisions.

How Should Investors Pursue Finfluencers’ Content?

When it comes to engaging with influencers, investors should approach their content as a source of knowledge and information rather than relying on them for financial advice. For instance, if an influencer explains how to select the best mutual fund by considering various parameters, it is advisable to watch and understand their perspective. However, blind trust in their recommendations and investing in the specific mutual funds they suggest may not be the most prudent approach. This principle applies not only to mutual funds but also to any other financial products discussed by influencers.

In the realm of social media, numerous videos cover topics such as the stock market, mutual funds, F&O, commodities, and more. However, it is crucial to understand that not all of these products may be suitable for your unique financial situation. Ultimately, it is your investment and your money, which means the potential profit or loss directly impacts you, not others. Over time, as you follow finfluencers, you will gain a better understanding of whether their content is genuinely helpful for your financial decision-making.

Moreover, if you find it challenging to manage your finances independently, it is advisable to seek the assistance of a dedicated professional advisor. A financial advisor can provide guidance on designing your investment portfolio and managing your personal finances effectively.

In conclusion, investors should utilize finfluencers’ content for knowledge and information purposes while being cautious about blindly following their advice. It is crucial to make investment decisions that align with your financial goals and risk tolerance. Additionally, if needed, consulting a professional financial advisor can provide valuable assistance in creating a sound investment strategy.

Stay safe, stay healthy, and stay invested.

Is investing in thematic funds a sensible choice?

Is investing in thematic funds a sensible choice?

17 June 2023 3 min read

Thematic funds are a type of mutual fund that focuses on investing in specific themes or sectors, such as technology, consumption, manufacturing, and others. There are several well-known thematic funds in this category that have assets under management (AUM) exceeding 4,000 to 5,000 core.

The rise and rise of thematic funds in India

Mutual fund asset management companies (AMCs) have been launching thematic funds on a regular basis for various reasons. There are several factors that contribute to this trend.

  • One primary reason for the frequent launch of thematic funds by AMCs is the SEBI-imposed cap on expense ratios. The maximum expense ratio charged by AMC is now limited to 2.25% per year. The expense ratio can differ from scheme to scheme, and a lower AUM in a particular fund allows the AMC to charge a higher expense ratio.

    Sr.no AUM (Crore) TER (Equity Schemes) %
    1 0-500 2.25
    2 500-750 2
    3 750-2000 1.75
    4 2000-5000 1.6
    5 5000-10000 1.5
    6 10000-50000 TER reduction of 0.05% for every increase of 5,000 crores AUM or part thereof
    7 >50,000 1.05
    Source:- AMFI

    When a mutual fund company launches a new fund offer (NFO), they typically receive a significant amount of lump sum investments. However, since the fund is new, its assets under management (AUM) are initially lower compared to established funds, such as mid-cap or large-cap funds. This lower AUM of the new scheme allows the company to potentially charge a higher expense ratio.

  • Another significant reason for the frequent launch of thematic funds is the strong attraction these funds hold for many investors. Investors are often drawn to theme-based funds due to their specific investment focus and potential alignment with their own beliefs or expectations about certain sectors or themes. Additionally, the appealing and descriptive names given to these funds, such as “business cycle fund” or “consumption fund,” further pique investor interest.
  • A third significant reason for the frequent launch of thematic funds by AMCs is the regulatory flexibility provided by SEBI. According to SEBI regulations, an AMC is restricted from launching multiple funds in the same category. For example, if an AMC launches a large-cap fund, it cannot launch another large-cap fund in the future. However, in the case of thematic funds, AMCs have the freedom to launch multiple funds based on different themes, such as consumer funds, housing opportunity funds, digital India funds, and more.

This regulatory flexibility allows AMCs to continuously introduce new fund offers (NFOs) in different thematic categories. and NFOs serve as a preferred method for AMCs to attract new funds from investors.

What is wrong with thematic fund?

Investors who choose to invest in theme-based funds often have a positive outlook on the specific theme they have selected. However, it’s important to note that some theme-based funds may have underlying stocks that are also present in other category funds. This can lead to overlapping holdings and reduce the uniqueness of the investment.

Additionally, investors can sometimes become overly optimistic about a particular sector or theme, which can result in unrealistic expectations for the performance of theme-based funds. If the funds fail to meet these high expectations, investors may be disappointed with the returns.

Furthermore, theme-based funds often require a tactical approach, necessitating precise timing for entering and exiting specific themes. Successfully navigating these timing decisions can be challenging, and if investors fail to execute them effectively, it can impact their overall returns.

Is it an advisable investment or not?

Determining whether to invest in or avoid theme-based funds requires careful consideration and analysis. As an investment advisor, I recommend the following approach:

Conduct thorough analysis: Before investing in a theme-based fund, it is crucial to perform comprehensive micro and macro analysis. Understand the specific sector or theme, assess its growth potential, evaluate market dynamics, and consider any associated risks. This analysis will help you make an informed investment decision.

Develop a strong understanding of Gain a deep understanding of the chosen sector or theme. Follow industry trends, stay updated on relevant news and events, and assess long-term prospects. If you have a strong grip on the sector and are convinced about its future potential, investing in a relevant theme-based fund may be suitable.

Seek professional advice: consult with a financial or investment advisor who can provide guidance based on your individual circumstances. They can help you assess the suitability of theme-based funds within your overall investment strategy and provide insights into potential risks and rewards.

Conclusion

In summary, if you possess the capability to conduct a thorough analysis, have a strong understanding of a specific sector or theme, and are convinced about its future prospects, investing in a relevant theme-based fund can be a viable option. However, seeking professional advice, regularly reviewing your portfolio, and maintaining a well-balanced asset allocation are essential components of successful investing.

I wish you safety and success in your investment journey. Stay secure and continue to make informed investment decisions. May your investments bring you happiness and fruitful returns.