Diversification is an art.

What is the average return from the stock market in India?

WHAT IS THE AVERAGE STOCK MARKET RETURN IN INDIA? The 2017 CRISIL report claims that the average annual return generated by a diversified equity portfolio has been 18% CAGR in the last 20 years

Why don’t Indians invest in mutual funds?

The reason for this is lack of awareness, anxiety about risk, high returns, and a need for risk-free investments that give stable returns.

Can my mutual fund go to zero?

Theoretically, any investment can be reduced to zero. So, if you have invested in stocks and one company goes bust, then the value of your investment in those stocks becomes zero.

Over the last few years, mutual funds have emerged as a popular investment option for a lot of investors. Traditionally risk-averse investors who used to deploy their money only in FDs and gold have now started investing in mutual funds. Yet, one of the most searched topics related to mutual funds is why you should not invest in Mutual Funds.

In this blog, we will give you 5 reasons why you should not invest in mutual funds.

If You Don’t Want To Earn Inflation-Beating Returns

Inflation reduces the value of your money over time. This means the money you currently have will get you lesser goods and services in the future.

For instance, the annual average inflation in India in the past 10 years stands at around 6%. If this continues to be the long-term inflation rate, what costs you Rs. 1,000 today will cost you Rs. 5,743 after 30 years. In other words, you will have to spend nearly six times the money you are spending today. And the harsh part is there is no way to escape this impact of inflation. It is inevitable.

Thankfully, though, you can find ways to beat inflation by investing in products that have the potential to offer higher returns than the inflation rate.

One of the proven methods to beat the inflation monster has been to invest in equity. Despite all the ups and downs that come with equity investing, all major Equity Mutual Funds have delivered double-digit average annual returns in the long run.

This level of returns can help you beat inflation easily and hence avoid erosion in your money’s purchasing power.

If You Do Not Want To Create Wealth In The Long Term

When looking at various investment avenues to put our money, most of us look at the returns they can provide. The most common comparison is between FDs or other saving instruments and Mutual Funds.

Now, most of us look at a 7% return from these saving instruments, and even though Mutual Funds can give high double-digit returns, we take a conservative 10% rate. And then because the difference is just 3%, they decide the risk is not worth it.

On the face of it, the 3% difference in returns may look very marginal. But as these returns get compounded over the years, the difference in returns will magnify to a huge amount in the long run.

Let’s understand this with an example. Assume you will invest Rs. 10,000 each in a mutual fund SIP and an RD. Let’s check how the difference will grow over time.

Notice that between the 20th and 30th year alone you accumulate more than Rs. 1.5 crore. This is more than the entire amount you can accumulate in the RD.

So if you want to miss the opportunity of growing a significant amount of wealth in the long run, you can surely avoid Mutual Funds.

If You Don’t Want Professional Management Of Your Money

When your car, mobile phone, or any other equipment does not work, you go to specialists to repair them. Since these experts are skilled enough to run tests on equipment and find out the exact fault in the functionality, they are able to fix them. It is their expertise in their domain that makes your life easy.

Similarly, Mutual funds make it easy for you to manage your money as you get the services of skilled and experienced professionals. They come with years of experience in investing. They have expertise in different markets like equity, fixed income (debt), derivatives. They make investment decisions on the basis of strong research and continuously monitor investments.

So, all you have to do is just invest the money in a mutual fund scheme based on how much risk you are willing to take and how long you can stay invested. After that you can be at peace, knowing that the professionals are working hard to manage your money.

If you do not want to take the help of these experts, then you should not invest in mutual funds.

If You Don’t Want Flexibility In Investment Amounts

You can argue that if creating wealth is the objective, why not invest in stocks or bonds directly. Sure, you can. But Mutual Funds allow you to own a set of stocks and bonds that you may not be able to buy easily at once, especially if you are just starting off or want to invest a small sum of money. Because when you buy a mutual fund, you do not need to own stocks or bonds in full units. Even fractional ownership becomes possible.

So, even with as low as Rs. 500, you can invest in a portfolio of stocks and bonds. The flexibility in investing does not end there. You can increase or decrease the amount you are investing at any time you want and by any amount you want.

Mutual funds also offer you flexibility in terms of modes of investment. One such mode is the systematic investment plan (SIP). In this mode, you can invest a fixed amount of money in your chosen mutual fund scheme in a disciplined manner. The money is automatically deducted from your bank account as per the frequency (monthly or quarterly) decided by you. So, the process of investing becomes extremely hassle-free. You can also opt for investment modes like lump sum, where you can make a one-time investment in a fund.

But if you do not like this convenient way of investing, you should avoid mutual funds.

If You Don’t Want A Well Diversified Portfolio At Low Cost

Diversification is one of the most important aspects of investing. It reduces the risk in your portfolio by cushioning the negative impact of a couple of securities in the overall portfolio. As a result, you achieve good returns consistently.

But if you buy individual bonds and stocks, it is impossible to build a well-diversified portfolio with a small amount of money. Fortunately for investors in mutual funds, diversification is an in-built facility. Even when you invest as low as Rs. 500, you are investing in a well-diversified portfolio. Your holdings will be across industries and sectors. Some mutual fund categories also allow diversification across asset classes such as equity, debt, etc. Such spreading out reduces the risk you are taking, as all asset classes rarely fall at the same time.

If you do not like such diversification at an affordable price, you should not opt for mutual funds.

Bottom Line

You can beat inflation with ease. You can generate good returns and build significant wealth in the long run. Your money is managed by professionals. You have a well-diversified portfolio which brings down the risk. And you can avail all these facilities by starting your investment journey from as low as Rs. 500. Don’t these benefits make Mutual Funds an opportunity to grab with both hands? Which other investment products come even close to it?

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