On the one hand you have this financial institution - called a commercial bank - that says,
"Folks, trust me with your money. I assure you that your capital will remain unimpaired for the duration, there will be no erosion in value. On top of that, I'll pay you a fixed rate of interest for the entire period, on the dot. It may not be very attractive, but it's guaranteed. At the end of the promised period you will get back the entire original amount of your principal and the interest due to you (unless you have drawn it earlier).Incidentally, for ages, apart from the usual savings and current accounts, we have had only three term investment schemes, viz., fixed deposit, recurring deposit and reinvestment deposit. Would you like to trust us with your hard earned money?"
Now, on the other hand, we have this institution called the mutual fund industry (some call it unit trust). It proclaims thus:
"You lay investors have neither the skill, nor the ability or the time to take the best investment decisions. You are also not smart enough to pick some blue chip shares for yourself. Investing is a full time job calling for analytic and a myriad of other skills.
We have full time fund managers, backed by full-fledged research teams, to take the right investment decisions for you. Putting money in a bank is the worst thing that you can do. Give me your money, and we will do a better job with it than you can with your own money. Just see our track record for the past so many years, the number of times that our funds (and schemes) have beaten the market, and made our investors richer.
However, note that our past performance is no guide or indicator of our future performance (meaning, don't blame us if we goof up badly!). You know, investments are subject to market risks. (Meaning, we do not assure you that you would get back your original amount, not to speak of any return on your investment.) You investment may go down by 50% or more in value. And, we may not show any growth or give you any dividend for months or years. We don't even know if and when we'd be paying you any dividend, if at all. Nothing is guaranteed.
And, because we are not sure about our investment schemes, we have floated hundreds of them - although one is hardly distinguishable from another (good enough even to fool the experts) - so that we can confuse you further, earn more commission, while covering up our failures. We also keep floating NFOs to lure newer victims. If even five of the 200 (say) schemes happen to click, we tom tom about those few, but never talk about the other 195 that have performed miserably.
Ah! Certain things are guaranteed, though! Such as our annual bonus, performance incentives, pay packets and perks. You see, whether you earn anything or not, the expense ratio of 2.5% that we deduct from your portfolios every year, keep us in good cheer.
What are you waiting for? Why not invest in mutual funds, you morons!"