Reasons Behind Why Indians Won’t Invest in Mutual Funds

Indian Express in one of its surveys on mutual funds found that it is the second most preferred investment in India.

The survey connected 1675 respondents in India covering the class interval age group 22 – 45 years and it was confirmed that 54% of the surveyed people voted for it. This raises the question, ‘Why don’t Indians invest in mutual funds?’

Still, there is a growing concern among financial experts about the non-investment in mutual funds although there are many ways to cushion your investment at times of financial collapse.

Let us get into the types of mutual funds, and how better you can invest to generate more return.

Types of Investments in Mutual Funds:

In mutual funds, there are two types of investments, systematic investment plan, sip, and lump sum investment plan in which you will have to pay INR 5,000.00 and above.

You may think twice to make an investment lump sum but making a part payment of at least INR 500.00 every month shouldn’t be a big deal.

Therefore, you must come out of that illusion that investments in mutual funds are not a sip of your cup.

Mutual Funds are available in equity funds, and debt funds and you can invest your desired ratio that helps you in balancing your risk options.

In equity funds, a major portion of the fund value is invested in the equities thus generating more returns. In addition, these returns can help your securities beat the rising inflation.

As your investments are invested in the company stocks by choosing a different portfolio the chances of losing much money can be avoided.

MF Debt Fund Investment Reduces Risk Factors:

You can take advantage of mutual funds that invest in debt funds exclusively and obtain a minimal return.

Your investment shall be put in debt instruments like securities, debentures, corporate FDs, or bonds.

But they will reap lower returns and to make an optimal profit in mutual funds, the best option is to put in the hybrid funds segment of mutual funds.

Hybrid Funds: Generates Balanced Returns

Hybrid mutual funds are yet another type of mutual fund that invests in a mix of equity and debt instruments, thus balancing the risk.

In hybrid funds, the fund manager splits your investment into two segments, equity and debt investment. This can help you in balancing your returns in high-risk stock market environments.

Note: The mutual funds are subjected to market risks therefore you may not get the expected return at times of adversaries faced in the stock markets.

Still, you can expect an annual return of at least 15% to 20% every year as your guaranteed returns and it is defined over the historic statistics since the inception of the mutual funds in the financial markets.

Stocks Vs. Mutual Funds for Long-Term Investment

Your question, ‘Stocks or Mutual Funds, Which is Better?’ defines several factors to be known by any reader, and, for that matter, many do not understand the basic course of action that takes place in stock business or mutual fund business. Moreover, the terms long, and short about investment/trading are more of a time-bound relationship.

In crisp, say, company shares are put in stock markets for trading, and mutual funds are collective stocks of varied companies pooled under specific portfolios. In both cases, you can make investments for the short term or long term.

In stocks, the shortest term is the intraday ( single day) trading, and the longest is the futures and options trading (from a few weeks to a few years).

In mutual funds, the investments made up to a period ranging from one to three years are short term and above three years are considered to be long-term investments.

You asked what is a better investment, stocks or mutual funds for a long term? The answer should be self-judged and only after analyzing the facts of stocks and mutual funds.

Stock Operations in Markets:

Stocks do operate in a highly volatile environment and with the stock prices fluctuating up and down throughout trading sessions, makes it difficult to profit on your investments.

You will have to make highly accurate statistical analyses such as exponential moving averages and predict the probable resistance, and support for buying and selling stocks.

Still, the stocks become unpredictable because the good news of the company can hit the stock’s upper circuit, and bad news can hit the stock’s lower circuit. Hence, you must remember that day trading ( intraday trading) may not reap good results. When you enter into deliveries you may incur huge loss as the intraday trades are extended to the next trading sessions.

For long-term investments, you will have to opt for futures and options for a considerable period like 1 year to 5 years and above relatively. In this case, your risk zones shall reduce and reap you high returns.

In stocks, you can make huge money in the long term but you will have to frequently study the market credentials and change the exit positions to book more profit.

Mutual funds are operated and regulated by fund managers and the possibility of incurring loss in the short term is less, and you can reap between 20 to 40 percent returns in the long term, say from three years and above.

In mutual funds, you can opt for exiting the fund but you will have to make payments on exit fees, and other relevant charges. It can reduce your profitability.

You can exit the mutual fund in long-term investments and you can do any time during the stock trading hours.

On opting for exit from mutual funds, you will be made payments as per the existing rate at that time. Therefore, mutual funds are relatively less risky than volatile stocks that attract huge profits with a higher level of risk factor.

Comparison of Loss on Investments:

As fund managers make investments in different stocks/bonds of a portfolio you shall incur less loss in contrast to the investments made in single stocks. With the fall in the stock price, the possibility of incurring a loss on your investment is more.

Hence, if you are patient enough, invest in stocks for the long term to reap huge profits with the involvement of a bearable risk factor or leap to mutual funds for reasonably good long term profits otherwise.