Why Don't People Invest in Mutual Funds in India? (2024)

FAQs

Why Don't People Invest in Mutual Funds in India? ›

The industry has been prone to mis-selling of schemes which has resulted in lack of trust amongst common people. Mis-selling is when a Mutual Fund distributor sells schemes which makes him/her more commissions instead of selling the scheme which is suitable for client's goals and risk taking capacity.

They are usually managed by experienced professionals and that reduces the risk of losses an investor can incur. Investing in mutual funds provides diversification across multiple sectors/assets, reducing the risk of losses due to poor performance in one area.

However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.

Liquidity is another drawback of such investments. Land Property- This is a somewhat risky investment. India has fragmented land, with most of it being inheritance property. Although an intelligent investment can create wealth, other law and order issues like encroachments are risky.

Regulated by SEBI

The Securities and Exchange Board of India (SEBI) regulates mutual funds, ensuring that they operate within specific guidelines and follow strict investment policies. This provides investors with a sense of security and trust.

What is the average ten-year return on mutual funds in India? The average ten-year return on mutual funds in India is 20%. Mutual fund performance is directly correlated with market dynamics.

Since equity mutual funds are market-linked², they can be volatile. This means if the market goes up, they will generate higher returns, and if the market goes down, it can create chances of loss in mutual funds.

Investors assume a level of risk that a security increases or decreases in value. Downside risk represents the worst-case scenario and may be precipitated by a market or economic event that causes a decline in the security's price in the short term.

In the case of a Mutual Fund company shutting down, either the trustees of the fund have to approach SEBI for approval to close or SEBI by itself can direct a fund to shut. In such cases, all investors are returned their funds based on the last available net asset value, before winding up.

What are the 5 reasons not to invest in mutual funds? ›

Near investment goals: When individuals are close to achieving their investment objectives or nearing their financial goals, SIPs may not be the most suitable investment avenue. This is because SIPs are designed for long-term wealth accumulation and may not align with short-term financial requirements.

So, mutual fund value becoming zero is not possible. At the same time, you need to understand how market moves.

Across India, savings bank accounts remained the most popular financial product. In a shift from last year, FDs overtook mutual funds to become the second-most preferred investment in the North (62%), East (61%), and West (59%).

Investments in the US market may offer stability and dividend income, while the Indian market provides the allure of higher capital appreciation fueled by a youthful population, urbanization, and increasing consumption.

India's economy remains robust. Reforms continue to improve the business environment. The country is benefiting from a young, expanding population and a geopolitical backdrop favoring its rise as a manufacturing base. Maturing capital markets also bode well for future investment opportunities.

One of the most compelling reasons to start investing in mutual funds early is the power of compounding. Compounding refers to earning returns not just on your initial investment but also on the returns generated over time. The longer your money remains invested, the greater the compounding effect.

Most mutual funds are aimed at long-term investors and seek relatively smooth, consistent growth with less volatility than the market as a whole. Historically, mutual funds tend to underperform compared to the market average during bull markets, but they outperform the market average during bear markets.

You can invest just Rs 500 per instalment in a mutual fund through the SIP. How much Return Rs.10000 would create in 30 Years? If you invest Rs.10000 per month through SIP for 30 years at an annual expected rate of return of 11%, then you will receive Rs.2,83,02,278 at maturity.