The common myths about the mutual fund on account of which people don’t loosen the purse are
- Mutual Funds are a riskier asset class
- Mutual funds ideal for short-term investment
- Mutual funds are all about equity
- Mutual Funds are for experts
Myth 1: Mutual funds are considered as a riskier asset class and still a good section view it more as a gamble and think it is not affordable to take the risk. They perceive it as riskier than investing in stocks. The reasons for these myths to prevail even after 20 -25 years of existence is selective propaganda in the market. Some news spread in the market that devoid of facts. The velocity of bad news is more than good news and hence people tend to get carried away. For every investment, there will be few exceptions. But not many will take an earnest step to verify the information. Today media also tends to voice opinion instead of revealing facts.
Mutual funds are as risky as the underlying assets. If you take liquid funds it will be investing in very short term treasury papers that will mature within the next 30-90 days. So it can’t turn bad in you invest for say 30 days to 60 days. On the other hand, if you invest in Large-cap funds and stay invested for over 5 years then you stand a very high chance of getting a positive return. If you extend the period to 7-10 years then you are much better. So in my opinion Equity is not risky, it is the time that you give to the equity that’s risky.
Generally, Indian investors tend to avoid equity when markets are volatile and do fence sitting until things become very clear. Investors suffer what is called FOMO syndrome. It’s basically “Fear of Missing Out“. Investors tend to enter when the market starts climbing the peak.
The average mutual fund investor does not stay beyond 30 months. While there has been some improvement, this does not still help the long-term cause. So the general feeling that they carry is that the returns are mostly on papers and not practically seen in my portfolio.
A lot of efforts are made by AMC, advisor forums and Investors awareness program to dispel such myth. The “Association of Mutual Funds in India” (AMFI) which had built a highly effective campaign such as “Mutual funds Sahi Hai” which has completed 2 years since March 2017 did create a positive vibration in the mutual fund industry
Myth 2: The second myth that drives against mutual funds is the perception that mutual funds are meant for short-term investments. The average holding period of mutual funds says that people are willing to hold only short-term. It’s sometimes ironical that people choose FD or bonds or post office schemes for 15 years and above. Mutual funds get churned in 2-3 years. But still, we have not been able to eradicate this virus of short-term mentality. I
Investors can stay long term then there will be more stability to mutual funds and so is the return. It can go a long way in creating wealth and spread goodness amongst others. The proof of the pudding is eating it. So if investors can see wealth in their portfolio it will translate to more confidence and more participation. With over 126 Crores population we are struggling to grow the equity population beyond a few Crores. Investors do have some equity now compared to the past. However, it is too little to make an impact and it is kept for too short a time.
Myth 3: This hysterical myth about mutual funds that it is all about only equity and does not measure up to serve my risk appetite is another factor working against the industry. Mutual funds in India are there for over 55 years since the time UTI has been launched and have completed 25 years since the private funds have come in. So in the last 20 years, wherein most big funds have come in and completed some track record there has been a wide array of mutual fund categories of funds made available to suit every investor.
No doubt, equity is the dominant pie in the entire portfolio but there is a large portion of retail investors who have an investment in debt mutual funds. Currently, Individual investors hold over 4,00,000 Crores of investment in Debt funds out of 23,00,000 Crores of MF AUM. So, investors can consider investing in all asset categories such as liquid fund, short-term debt, and long term debt fund to optimize their return.
Myth 4: Mutual funds are meant for only experts is another big challenge faced by the Industry. There is a simple rule that if you can’t manage, hire a manager to manage it and you manage him”. So in this case, a mutual fund does exactly that. When you can’t manage your own investment and you find difficult to find time for it, you are better off finding an able fund manager.
When you invest in Mutual fund obviously you don’t need to be an expert. The Fund manager will do the due diligence on your behalf and you just need to track him. So you can outsource the fund management skills. Break those myths and come to the real world of REAL Returns