When I lecture at B-Schools, I often challenge my students to question market myths. Am using the term myths as the caveats that should accompany sweeping claims are almost never made.

Some of the more popular myths include: Equities are the best performing long term asset class. To buttress that claim, a chart is invariably presented by equity fund managers with the start point invariably being the lowest point of the BSE Sensex, quite often even before the infamous Harshad Mehta scam period.

The caveat that is conveniently missed of course is that, for one, the Sensex components and their weightages have changed almost beyond recognition and more pertinently, most retail investors jump onto the equity bandwagon at the worst possible moment.

More often than not, it is at the peak and they also sell in distress at the bottom. Hence, at least as far as the retail investor is concerned, the real chart is an inverse of the one presented.

I must reiterate here that while I agree that investing in equities holds out adequate potential to be rewarding, it is the sweeping statements sans the necessary caveats that I find myself disagreeing with.

It was thus with fair interest that I noticed SEBI's recent diktat to Mutual Funds that the risk associated with mutual fund investments must be highlighted clearly. I agree, and add that it should bloody well be in a font size that is unlike the ones that patients peer at during visits to their ophthalmologist.

Not too long back, SEBI had rapped errant mutual funds on their knuckles and asked them to spend a minimum of six seconds of air-time on their television advertisements highlighting the risks associated with investing in mutual funds.

This too made immense sense as many of these advertisements painted an extremely rosy picture about the future prospects of a young family that invested in their fund, or an old couple that has laughed their way to the bank post-retirement.

In fact at this stage, allow me to narrate an experience which reinforces my belief that just as SEBI is getting its act together on the primary market front, its mutual fund reforms too are on the right track.

At a mutual fund presentation I once attended several years ago, I watched with amazement as a fund manager whose fund’s NAV had dipped from its face value of Rs 10 to a paltry Rs 3 made a strong case for further investment by battered investors on the basis of the Rupee cost averaging theory ( another humbug ).

His pitch was – you invested at Rs.10, so now at Rs 3 there is an even stronger case for you to re-invest and average your cost. While there must have been gluttons for punishment who probably fell for that drivel, I noticed several wiser (though poorer) investors were up in arms saying – your distributor assured us that in the past your schemes have provided good returns, so why is it not so in this case?

Clearly, no one had warned these investors (like SEBI now insists) that past returns are no guarantee for future performances.

At that stage, I decided I did not want to be part of this ‘tamasha’ any longer, but before parting I asked the fund manager one question – wasn’t over 30% exposure in a single stock fraught with risk and even if he did not think so, what was the billing rate trend in that company?

His answer or rather, non-answer, proved to me that the mutual fund industry was in desperate need of accountability.

Will SEBI's initiatives on the mutual fund front over the last few months, yield the desired results ?  Let us take that forward, next week.

(ASHOK KUMAR is Promoter, theIPOguru.com and Director, Lotus Knowlwealth)