Mutual fund advisors use PNB scam to teach importance of diversification

Many mutual fund investors, especially novices, are flocking to their advisors after the PNB scam. Many of them want to know how it would impact their mutual fund investments. Apart from offering the required explanation, many mutual fund advisors using the opportunity to drill down the importance of diversifying investments and advantages of investing through mutual funds.

“These investors are upset over the news and asking questions like- Is this the kind of risk involved in equities? Some investors even enquired whether to move back to bank fixed deposits,” says Shweta Jain, Founder & CEO, Investography. “Investors are learning why investing through mutual funds is better and safer than investing directly into stocks.”

Advisors are explaining to investors that the impact of a scam like PNB won’t be huge in a mutual fund scheme, as it would be limited to the scheme’s exposure to the stock and the sectors impacted by the news. Also, there is a professional fund manager there to analyse the situation and take appropriate decisions. An investment in the specific stock, on the other, would take a severe beating.


Manoj Chahar, founder and CEO, Moneyfrog, an AMFI-registered financial advisor, says, “Unlike someone with a direct exposure to the stock, the impact on most of the mutual fund schemes is not much, unless they are invested in one of the PSU/ Bank funds.”

Shweta Jain says that new retail investors who entered mutual funds in the last one or two years are quickly learning the need to diversify their investments. “They are learning why it makes sense to invest in mutual funds rather than picking one or two stocks and investing. They have begun to understand the risk.”

However, investors in the scam-hit banking sector funds are in a panic mode. “We do not recommend thematic and sectoral funds as these kind of schemes involve huge risk. Those who invest in sector funds must understand the underlying risks involved in the sector,” says Shweta Jain.