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Foreword to 1st edition of "Indian Mutual Funds Handbook" from Shekhar Sathe, Director, Kotak Mahindra Trustee Co. Ltd.

This handbook will act as a catalyst for demystifying mutual funds. Each chapter addresses complex issues in a very simple and entertaining way to make mutual fund investing common sense.

Like banks, mutual funds will eventually become a significant part of the Indian financial system and, therefore, a part and parcel of the life of the common investor. I dare say that to manage personal savings is not an easy role for people uninitiated into the complexities of today’s markets. In India, the financial system is entering the next stage of reforms, where individuals will have to decide for themselves what is good and safe for them, or what is risky but rewarding. This handbook holds the reader’s hand and walks her through the world of funds.

Mutual funds are mistakenly equated with stock markets. Past few years have decisively proven that debt schemes are also capable of producing handsome returns. It is important for investors to correctly gauge the risk/reward relationship for any investment proposal. One of the glaring mistakes people make is the assumption that equity schemes have high risk and, therefore, give a high reward. The correct relationship is that higher the risk, higher should be the reward for justifying that risk; and that along with the potential of high reward there is the possibility of high loss as well.

Another misunderstanding about equity schemes is that they are long-term investments. What it means is that given the high volatility of the stock market, it may take a long time for you to earn the high return (to justify the high risk you take) you are looking for. Sundar vividly brings out the right perspectives in each of the chapters.

In my view the quality of a mutual fund is best described by the acronym, RESTFUL. Each letter of the word stands for a performance parameter:
R represents the risk reward relationship. The return generated by a fund needs to be adjusted for the risk the fund takes.
E represents ease or convenience in transacting.
S   represents service standards of a fund-house.
T   represents transparency or the quality of disclosures to investors.
F   represents familiarity of the fund house about their customers’ needs.
U represents utility of a particular scheme to meet investors’ financial planning needs.
L   represents liquidity. Is the fund delivering the liquidity it promises at the right price to the investor?

Anyone who studies this handbook will be able to judge investment propositions offered by any fund on each of these parameters and be able to take the first step towards making worry-free investments. I wholeheartedly recommend this book to everyone who wants to make informed investment decisions.

Designations are as on the date the book was first published