Fintotal News Analysis | Banks Starting Mutual Funds
Banks Starting Mutual Funds
Ruby Jacob, 10 Jun 2010

Whats happening?

Bank of India is the latest to join the bandwagon of public sector banks trying to start a mutual fund company. SBI, Canara, Bank of Baroda, etc are already there. The idea seems to be to tap into the captive customers they have, who walk into their wide branch network for financial products anyway. Incidentally, Bank of India had a presence in this industry earlier, which it closed in 2004.

What does it mean for me?

For you as a bank customer and an investor, this is not really good news. You should be really wary of what the bank is trying to sell you. An independent research or recommendation would be much better than having one made by the bank staff or manager herself.

Imagine asking a fruit vendor whether the watermelon you are planning to buy would be fresh and sweet. Can you expect him to say - No, its actually old stock. Not very sweet either. Or, if you are planning to buy watermelons and he didnt have any, would you rather that he hard-sell you oranges instead? This is precisely what is likely to happen with banks having their own mutual funds, and trying to sell them too. You would lose judgment and independent unbiased views.

This is not a question of trusting the bank; the bank is not going to run away with your money. But you may make bad investment decisions and buy wrong products. It is a simple conflict of interest. Even your best friend or family member would struggle to be really unbiased and independent in such a situation. In short, do NOT use the bank as a source to get your advice from!

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