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Why Are YOU Afraid of Investing in Mutual Funds?

09 May 2022

The Indian mutual fund industry is growing at a rapid pace, but Indians are still hesitant to invest in mutual funds. This is because they are worried about the safety of their investments, or they don’t trust the financial advisor or company selling them the mutual fund products.

Mutual funds are investment tools that allow you to invest in a variety of financial assets, such as stocks and bonds. They’re managed by professional fund managers who invest in a wide range of different assets and try to balance their risk.

Reasons why Indians are scared to invest in Mutual Funds

Despite the fact that mutual funds are an excellent way to diversify your portfolio and achieve better returns on your investments, many Indians still hesitate when it comes time to invest in them, and here are the reasons behind it:

1) Risk factor

The risk factor is the main reason why many people avoid investing in mutual fund. Investors fear that their investments will get affected by market fluctuations and other economic factors and may lose all their money. In fact, many investors do not even know how to invest in mutual funds or what kind of risks they need to take into consideration while making an investment decision. 

2) Past records

Another reason why Indians hesitate to invest in mutual funds is because of past records. Some investors have lost money when they invested in mutual funds that had high returns initially but then went bankrupt later on due to poor management or bad decisions by stockbrokers who misguided them into buying some stocks without properly explaining to them its features and benefits as well as possible drawbacks.

Investing in Mutual Funds

3) High Expense Ratios

High expense ratios and sales charges eat into your profits if you’re not careful about choosing the right fund for your needs. Mutual fund expense ratios and sales charges can be high compared with those for individual stocks or bonds because they must cover the costs associated with managing large portfolios and pay commissions to advisers who recommend them to clients. Some mutual funds also charge an annual maintenance fee. These fees can eat up a significant portion of your returns on investment (ROI).

4) Lack of knowledge

Another reason why many Indians hesitate to invest in mutual funds is that investing in mutual funds for beginners seems like a complex process. This may be due to the fact that investors have little or no knowledge of how mutual funds work or what benefits they offer. Mutual fund investments require a certain level of expertise and knowledge about financial markets and economics and investors need to get a little guidance about it to begin with.  

5) Poor Trade Execution

Mutual fund managers face several challenges when trying to execute trades quickly and efficiently. For example, they may have to wait for mutual fund units to be sold in the secondary market before buying new units, which can cause delays in their ability to execute their investment strategy. This leads to higher transaction costs for investors who participate in mutual funds.

6) Tax Inefficiency

The taxes levied by the Indian government on mutual funds are very high compared to other countries such as Singapore and Hong Kong where there is no tax levied on investment returns. This makes it more expensive for investors who want to invest their money in mutual funds. While tax efficiency is a concern for all investors, it is especially problematic for Indians because they often invest in non-taxable instruments such as fixed deposits or municipal bonds instead of mutual funds. Because these investments don’t generate returns that can be taxed by the government, investors are able to avoid paying taxes on them—but this means that they also miss out on potential gains that could be generated by using tax-efficient investments like mutual funds instead!

Invest in Mutual Funds

Why it is good to invest in mutual funds

The big question that arises now is, are mutual funds a good investment choice? Mutual funds actually are one of the best investments you can make. They allow you to make a small initial investment and grow it over time, without having to worry about making decisions. They have many advantages over other investment vehicles such as stocks or bonds. Let us look at a few of them-

1) Low Cost

Mutual Funds are considered low-cost investments because they are made up of many individual securities that may not be expensive individually but taken together provide good returns at a low cost. The expense ratio is the amount deducted from your investment every year just for being invested in the fund (i.e., without any trading costs).

2) More Diversification

Mutual funds allow investors to spread their risk across multiple securities, which reduces the risk associated with investing in a single company or sector. This can be especially important when investing in volatile markets like India’s where there may be significant swings in value over short periods due to political instability or other factors outside of the investor’s control.

3) Liquidity

They provide instant liquidity for investors. If you need to sell part or all of your investment, you can do so at any time without having to wait for an offer from an investor who’s interested in buying it from you. This means that you won’t lose money on taxes because you need to sell before the end of the year; instead, you can get the full value of your investment right away.

4) Tax Benefits

They provide tax benefits because they allow investors to defer paying capital gains taxes until they sell their shares in the fund or distribute them as dividends. This helps investors avoid capital loss or tax liability when they sell their shares at lower prices than they paid for them, which is common during market downturns like those we’ve seen recently due to economic instability around the world.

Conclusion

Whether you are an investor in mutual funds or not there is a lot that you can learn from the investment market. For one thing, you can learn to be patient, which is key to investing in mutual fund. You will also have to wait a long time before you start seeing any tangible results. It takes a median of five years before investors begin to see money coming in on their investments and fifteen years is considered the typical holding period for most mutual funds. 

If you are looking for immediate results and quick returns then this may not be the right choice for you. After all, most people start investing with no expertise or guidance and many lose money due to a lack of knowledge of how the markets work. However, if you are interested in investing for the long haul then there is no better option than making use of mutual funds which will help ensure that your portfolio continuously increases even when the rest of your market falters. To begin with, learn how to invest in mutual funds and research the best mutual funds to invest in. 

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