The Real Power of Mutual Fund Investing:

Last 5 years have been testing the patience of investors - be it Mutual Funds or direct stock market. But many investors perceive Mutual funds to be underperforming when compared to their direct equity portfolio. As a result many of them are drifting away from investing in Mutual funds and have preference of direct stock market investing over Mutual Funds.

Following incident would clearly highlight the power of Mutual funds when it comes to protecting investors money

• When you invest in Stocks, you become a share holder. As a result you are entitled to all the corporate benefits like dividends, bonuses, rights etc. In many cases, companies do send notice of Annual General Meetings (AGMs) and Board Meeting outcomes. In many situations they send you postal ballot form which is your legal right like voting to vote in favour or against the board meetings decisions. This is clearly an investors right and SEBI is very strict in its implementation. SEBI does penalize those companies which donot adhere to such rules and they are part of corporate governance.
• The fact is many investors donot read these board meeting decisions and donot send their postal ballot. They 'feel' their share holding is insignificant and will not make any visible impact on the companies. And many other investors feel these papers are pure scrap's and throw it away straight case. And there are few investors who do discuss this with their stock brokers / friends / advisors but at the end are not able to decide what to do.
• On the other hand, when mutual funds invest these shares - the MF management represents all their investors on the meetings. Infact if anything unfavourable happens - in non-transparent ways - they object it vehemently. 
• For instance, on 7th December 2008 erstwhile SATYAM computers proposed to acquire a major stake in their group company MAYTAS Properties and MAYTAS Infrastructure for Rs.8000 Crores (US$1.6 Billion). Many Mutual Funds did have investments in SATYAM and they opposed the deal.
• "Templeton Mutual Fund, Reliance Mutual Fund and SBI Mutual Fund voiced their dissent over the deal. Templeton went ahead to say that they will block the deal at any cost." Retail investors in direct stock market did get a notice from Templeton Mutual funds to vote against SATYAM managements efforts to take over the 2 group companies. 
• “We believe this decision by the Satyam management is against the majority of the shareholders. It is not good for the long-term benefit of the company and they should learn from the message delivered by the market, which is valuing our company at lower than the cash on the balance sheet. We urge the management to cancel this decision ,” said ICICI Prudential Asset Management chief investment officer Nilesh Shah.
• One month later on 7th Jan 2009, SATYAM founder Mr.Ramalinga Raju admited to cooking up his book of accounts and surrendered before police. Had Mutual funds not objected to the Managements Motive, Raju would still be a free man and Lots of wrong doings would have gone unnoticed.
• Similarly recently Maruti proposed to hive off its unit in Gujarat as a seperate unit. This move is strongly objected by Mutual Funds. Article shown near by clearly shows the proactive mutual funds which object such moves which harm existing investors.

Investors need understand their real power is by investing in mutual funds. Instead of colluding with the management, they take a neutral view on the company management and favour what is right. Though investing in mutual funds delivers an average return, since they invest in a basket of stocks, the return on investment on over all portfolio is much better. In and only if investors have high conviction on the stocks ideas, they need to venture into direct investing. Otherwise, it is better to invest into good MF schemes.

Click this link to read article on Satyam Scam.
Click this link to read the 2nd article on Satyam Scam