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Yogi Zone

Useful articles for your finance management by our team of experts

5 Reasons why people don’t like to Invest in Mutual Funds?

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mutual fundsI happened to meet an old friend few days back. He was a very knowledgeable person working with a reputed MNC. We always used to discuss and debate on several regional as well as national issues. This time we happened to discuss on the topic of ‘Investments’. The moment I started talking about mutual funds as a mode of investment, he stopped me. He told me they are unsafe and in the greed of making big bucks, we might lose our capital.

I then realized that there is a lot of be done on the personal finance front. When a young knowledgeable individual doesn’t like mutual funds, no wonder why many others wouldn’t. Then, I began analyzing why people don’t like mutual funds. Here are some of the reasons which I feel are stopping people from investing their hard earned money in mutual funds.

Reason 1 – Lack of Awareness

Most of the things we know are not because we have asked for them. It’s because someone has told us or we have seen it somewhere. It’s not different when it comes to awareness regarding mutual fund investment. These days there seem to be a lot of ads, information in blogs, newspapers, etc on various aspects of personal finance including mutual funds. Despite that, people still seem to be unaware about how mutual funds work, how to choose them, etc. Unless people are clear about the above said aspects of mutual funds, they will hesitate to invest in them.

(We Recommend you to check FundsIndia Expert Picks from Top Performing Mutual Funds)

Reason 2 – Complexity of product

Mutual fund seems to be a very tough product to understand for a layman. If you directly ask him to invest in a mutual fund, he is sure to back off from it. An average investor likes to invest in products like banks deposits and insurance policies as he feels they are easy to understand. For example, he directly needs to approach his bank to obtain a deposit. If anything, he only needs to know the interest rate offered for the tenure of deposit. People believe choosing mutual funds are a headache and instead of understanding them, they skip them.

(Also read: Learn the art of picking mutual funds)

Reason 3 – No guaranteed returns

This was one of the reasons mentioned by my friend during the discussion about mutual fund investment. He asked me whether mutual funds provide guaranteed returns. My answer was NO. But then, when inflation is hovering around 10-11%, are guaranteed returns of 9% really so good? If you take the post tax returns (for 30% tax bracket), it is a dismal 6.3%. We all know that nothing is guaranteed in this world. But, when it comes to investments, we want this to change.  It’s time people understand that though mutual funds do not guarantee any returns, they are vital in achieving your goals.

Reason 4 – Lost trust in markets

When you ask someone why he doesn’t like mutual funds, there are 90% chances of him telling you that he has lost trust in (stock) market. First of all, mutual funds are not only about stocks. There are other debt funds which invest in treasury bills, bonds, commercial papers, etc. and they are very safe for investment. It again boils down to the first point i.e. lack of awareness. Moreover, there are a lot of equity oriented funds which take exposure to stock markets and have done really well.

Reason 5 – Previous experience

There are also those set of people who have invested in mutual funds but have been hit hard by them. Remember the old saying ‘Once bitten twice shy’? It could also be that some of their friends have invested and faced huge losses. What could have gone wrong? They or their friends could have either picked a bad performing fund, chose the fund which did not suit their risk appetite or may not have persisted long enough with a good fund. All these happen when there is lack of knowledge. When in doubt, it’s better to consult an expert such as a financial planner.

Conclusion

Once you begin understanding mutual funds, I am sure you will like them more than any other products. However, it’s not that easy. You have to begin with 1-2 good funds in order to gain further confidence. Then, you need to know which funds would be needed as per your goals, risk, etc. Also, you need to review these funds from time to time. Some of the funds may be good now, but may fade away later. If you do all these things correctly, you will definitely start loving mutual fund investment.

  • RUDRANIL GHOSH

    @suresh da…..hii..am Rudranil ghosh from WB.I would like to how much do you charge for making a customized financial plan?leave ur response at rudraghosh398@gmail.com

  • Urvin

    In one of the mutual fund my father has invested after 6-7 years he didn’t get even the capital forget about the profit after that i always afraid about it, more over in one of LIC’s Maket Plus i have invested 20k in 2007 and today i am not getting more than 20k, which is frstrated one.

    • Av Suresh

      Urvin, the problem with mutual funds as discussed in this article is that it is a complicated product. So, you need to pick the right funds for the right purpose to yield the right returns. The problem with insurance+investment policies is that they are simple products to invest but never give you good returns.

  • Omi

    Suresh AV looks like a tapori, moreover his advice is “transfer your funds to my company”!

    what is this world coming to – marketing people are getting shameless!

  • SanjayKSingh

    Banks Guarantee returns. At the worst case I have my capital as well as interest. Stock base mutual funds MIGHT give more than 10% rerun but they might also lose or reduce your initial investment.
    Bonds , treasury bills, commercial papers will not give you more than the current going interest rates so what is the benefit here. Safe mutual fund – low return might also lose investment. Stock based mutual fund hi risk – MAYBE high return and entry-exit decisions have to timed with the movement of the stock market . Entry and exit loads are also charged for every entry /exit , If you want high returns do business or go to the stock/commodity market. Safe + guranteed returns go to the banks etc. Mutual funds are not good at high risk / low risk returns, The mutual funds only benefit the fund house and the fund managers the investors be damned. Please remember it is both knowledge, castle in the sky promises from the fund agents and experience that drive investors away from mutual funds and not ignorance. Calling any one ignorant or ill informed , even indirectly , is not polite and very condescending. :-)

    • Av Suresh

      Sanjay, the reason for writing this article is not to prove that customers are ignorant. We don’t meant to do that by any means. Everyone has his/her own reasons for not choosing mutual funds. You are also right in one way. Mutual funds are risky whereas bank products are safe. Taxation aspect also has to be considered. Bank deposits attract 30% tax (for 30% tax slab) and post tax returns come to around 6.3% which is not acceptable. Each one has its own pros and cons. For starters, it is better to avoid mutual funds and opt for fd’s or other bonds.

  • Angad Gupta

    I have invested in MF but event after 6-7 years the fund value is less than principal amount. In most of cases, it’s the fund manager who ends up making fixed money, consumer are at loss.

    • Wakil Baba

      Completely agreed. Same case with me. I have invested in ICICI pension funds, Reliance Small cap growth and Sundaram SMILE fund over last 4 years. RESULT – except for 0.5% return in reliance, all negative. Have lost 15000 rs in Capital for 1.5 lakh invested over 4 years. READERS I BEG U, NEVER INVEST in MF, only your broker/agent will make money. NEVER U. Go for PPF or RD and term insurance always.

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