The benefit of reliable paths

A ship captain set sail from Cochin.

Ship’s name: Sao Joao.

The captain was from Portugal. He had a good reputation for captaining ships between Europe and India.

We are talking about an era when trade with India was greatly sought after by the Europeans – about 500 years ago.

Completely filled with goods and about 600 passengers, the ship headed towards Africa.

In those days, the routes were difficult.

Ships had to sail around the whole of Africa to reach Europe.

Either that, or they had to reach Egypt, unload their goods, travel on land to the Mediterranean Sea, and then load everything again on a ship for Europe.

Or, they had to take the tough land-based journey where the terrain was arduous and tough.

There were no easy options.

When Sao Joao reached the African coast, they realized they were heading into a storm.

Thunderstorms, lightning, and giant waves hit the ship from all sides.

The crew decided to turn around and return to India.

They started throwing the goods into the sea to lighten the ship.

The crew soon realized that even that would not be enough. The ship had been damaged too much. They had to dock the ship somewhere on the African coast.

While trying to do so, the wind swayed the ship and it hit undersea rocks.

The crew and passengers desperately tried to use their lifeboats.

But in the desperate situation, 300 people died.

The remaining who reached the shore now faced a new challenge.

What to do?

They were stuck in an unknown land. They did not know where to go.

They started walking north towards a Portuguese settlement about 1,000 km away.

The journey did not end well for them.

The path was extremely treacherous. They ate fruits and berries from the forests.

Eventually, they were captured by a tribal chieftain.

Most people died of various reasons like starvation, fighting, and diseases.

Eventually, 26 made it back – when they were discovered by Portuguese traders.

There are many such horror tales of the Europe-Asia route.

Canal

Things completely changed when a canal was built.

The Suez Canal.

The canal connected the Red Sea and the Mediterranean Sea.

The sea journey from India (Cochin) to Europe (Lisbon) became shorter by 4,000 miles.

It was thrown open in 1870.

Dreams of building a canal that joins the Red Sea to the Mediterranean Sea were not new.

Kings had dreamt of it for thousands of years. Some even attempted to make a narrow canal.

None truly succeeded.

Until 1870.

And with that, massive hurdles were removed.

Trade between Asian countries like India and China, and the European continent became easier than ever.

Today, Egypt collects a toll from ships passing through the canal.

They maintain it. They even developed it further in 2015.

Ships need not worry about bad weather around the southern tip of Africa. Nobody needs to worry about dredging the canal.

The canal authorities take care of all of that.

They built a canal that allowed traders to worry about trading – and not much else. And trade flourished.

It is impossible to imagine the modern global economy without the Suez Canal – 30% of global trade passes through the Suez Canal.

Mutual Fund Money Flow

Much like the canal, SEBI has structured the mutual fund space in India.

When an investor pays for an investment, the money is collected by a payment aggregator.

The collected amount is sent to Bombay Stock Exchange (BSE).

At the same time, the platform (like Groww) places the order for the transaction (to BSE).

This info is matched and cross-checked by BSE.

BSE will look at the amount of money it has received and match it to the transaction information sent by the platform.

The money is then sent to the mutual fund company’s Registrar and Transfer Agent (RTA) and then to the mutual fund company.

Every mutual fund company has to work with an RTA.

RTAs are responsible for keeping track of mutual fund transactions.

At this point, the units are allocated to investors.

The investment is complete.

CAMS and KFin are two RTAs that all mutual funds work with.

No matter which mutual fund you invest in, either CAMS or KFin will have records of it.

RTAs are closely monitored and highly regulated – by SEBI.

No other party is allowed to handle the investor’s money. This is the only path an investor’s money can take.

Earlier, things used to be different.

There were more parties involved. The path of the money could be different in different cases.

The current path is a lot like the Suez Canal.

The images above were generated using AI tools.