Well, not everyone believes that “Mutual Funds Sahi Hai”, and there are legitimate reasons for that.
According to Association of Mutual Funds in India, the latest data shows that only 1.5% of Indians invest in mutual funds.Based on the latest statistics, out of the total 134 crore people in India, the mutual fund industry has 2 crore unique PAN card registrations. It means that out of 29 crore PAN holders in India, only 2 Crore holders have a mutual fund investment to their favour. (Source: https://cafemutual.com/news/industry/12632-less-than-15-of-indias-population-invests-in-mfs).So, here comes the question of why Indians are hesitant about investing in Mutual funds? Let us understand the reasons for this here:
Not aware of how it works
Many Indians are not aware of how mutual funds work. Of course, they see ads on televisions that say that “Mutual fund investments are subject to market risk, please read offer-related documents carefully before investing”. With this sentence, they are hesitant whether they will lose their money. Being a traditional nation, most Indians feel that investing in banks will be the safe option for them. When they get complete knowledge on how mutual funds work, they will truly come forward to invest.
Bad past experience because of agents recommending wrong schemes and unrealistic returns
Mutual Fund industry has existed for more than 25 years in India, but its penetration is very low. 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. Since mutual fund distributors are driven by commissions, this inherent conflict of interest is often not aligned with client’s interest. Many people lost lose their hard-earned money with an inappropriate guidance and mis-selling, and now they are hesitant about again investing in mutual funds just like a cat fearing hot milk.
Thousands of Choice but Lack of Know how as to Which Scheme is good
Supposedly, on the brighter side, there are thousands of mutual fund schemes available in the market. But, the choice of availability makes it overwhelming for investors. The reason is people they do not have a complete knowledge on which will be the suitable choice for them based on their age, financial stand, risk-bearing ability and other factors. When they have the right guidance and knowledge, they are sure to get the excellent benefits from their investment.
Lack of Financial Advisers
The right guidance will always keep people in making the right monetary choice. With the lack of expert knowledge in the field of mutual investment, there is a lack of financial advisers. On one side there are close to 1 Lakh mutual fund distributors whose business is driven by conflict of interest, there are just about 900 SEBI Registered Investment Advisers which are fiduciary (Disclaimer: 7Prosper being one of them). In turn,Indians do not get the right guidance to make a right choice of the plan to invest their money in mutual funds.
Mis-selling of products
As mentioned earlier when people go for the regular mutual fund plan as against a direct plan due to lack of knowledge,they are forced to spend a huge sum of money as commission. At the end of the nvestment period, they find that they have not got the returns they expected.So, with the mis-selling of products by inappropriate agents, Indians are hesitant about investing in mutual funds. The agents sell products that make better commission to them. By doing so, they set false expectations for the investors just with a view to selling their products.
In short, the lack of knowledge pulls back most Indians from investing in mutual funds. However, the number of investors is increasing.
FAQs
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.
What are the problems of mutual funds in India? ›
Disadvantages of Mutual Funds
- High Cost of Managing Funds. Asset Management Companies (AMCs) charge an annual fee for effective portfolio management. ...
- Fluctuating Returns. ...
- Exit Load. ...
- Diversification and Dilution. ...
- Dependence on Fund Manager.
Mutual fund investments when used right can lead to good returns, keeping risk at a minimum, especially when compared with individual stocks or bonds. These are especially great for people who are not experts in stock market dynamics as these are run by experienced fund managers.
Why I don't invest in mutual funds? ›
Lack of Control. Because mutual funds do all the picking and investing work, they may be inappropriate for investors who want to have complete control over their portfolios and be able to rebalance their holdings on a regular basis.
What is the biggest problem with mutual funds? ›
Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
What is the status of mutual funds in India? ›
Current State Of The Mutual Fund Industry In India
Assets Under Management (AUM) in the mutual fund industry increased by 41% in the fiscal year 2021. The AUM was worth Rs 33.67 trillion as of June 30, 2021. The bond funds were the most appealing in fiscal 2021, with net inflows of Rs 3,299 crore.
What are the dark side of SIP? ›
There are very few negative of SIP which are ignorable: Date of investment is fixed and you cannot even manipulate it by one or two days. Your average entry date is delayed. Each installment of sip have different entry price, so calculating return is tough.
What is the future of mutual funds in India? ›
The future of mutual funds in India looks very promising. In the past, there were about 200 different schemes from various institutions, but now that number has increased five times. The availability of different schemes can cater to a wide range of investors.
Which mutual fund is best in India? ›
Best Mutual Fund Houses in India: Overview
- 1) SBI Mutual Fund.
- 2) ICICI Prudential Mutual Fund.
- 3) HDFC Mutual Fund.
- 4) Aditya Birla Sun Life Mutual Fund.
- 5) Kotak Mahindra Mutual Fund.
- 6) Nippon India Mutual Fund.
- 7) Axis Mutual Fund.
- 8) UTI Mutual Fund.
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.
Potential Cons
Mutual funds have expenses, typically ranging between 0.50% to 1%, which pay for management and other costs to operate the fund. Some mutual funds have sales charges, or "loads," that investors pay when either buying or selling a mutual fund. Market risk.
What is downside in mutual fund? ›
Downside risk usually causes investments to lose value in the short term. Stock and bond markets may generate positive results over the long term, but market events can cause specific investments or sectors to decline in value in the short term.
Why Indian mutual funds avoid Adani stocks? ›
Mutual fund industry-level exposure to Adani group companies. Despite the bull run that Adani stocks have seen in the last year, most of the mutual fund houses stayed away from the group companies. It was mainly because of the elevated valuations. Adani Enterprises Ltd.
Is mutual fund industry growing in India? ›
Mutual fund industry is growing in India because of increased and unprecedented accessibility to financial markets.
Is mutual fund legal in India? ›
Registration Requirement: Every mutual fund must be registered with SEBI, establishing a legal framework for operations. 2. Trust Structure: Mutual funds are structured as trusts per the Indian Trusts Act of 1882, with sponsors, trustees, an AMC, and a custodian.
Who is the target audience for mutual funds in India? ›
Demographic Characteristics Of Target Audience
44% of investors who have started investing in the last 3 years fall in the 31-40 year age bracket. About 32% of new investors are under 30 years of age. Mutual funds attract investments from about 50% of the urban rich population.
