Surprised! Such an article about why should you NOT invest in Mutual funds when there is great hype in the market about mutual fund and “mutual fund sahi hai” campaign and various advertisements, client hand-holding and countless promotion of mutual funds.
Yes, you heard it right. There can be situations/conditions when you should not invest in mutual funds at all.
Table of Contents
So, Let’s dive in and find out Why should you NOT invest in Mutual Funds?
Reason # 1
When you want quick Money/Return from your mutual fund investments
Fundamentally, mutual fund investments give you high returns if you invest money for the long term and take adequate measures (such as to invest as per Financial Plan, portfolio review) to safeguard investments.
Please note that for short term money investment needs, you can invest in debt funds of varied durations.
But if you are keen to invest in mutual funds for quick returns in no/short time, then it is quite difficult.
Short term duration Mutual fund investments are also available for short duration investments.
All schemes have their risk return profile. But to get high returns you need to invest your money for a long time ONLY.
Thus there is no shortcut for quick success
Reason # 2
You cannot digest up and down in returns
If you get nervous seeing your money value going up and then down and then further down, it might be negative and thereafter good return.
If market volatility makes you feel uncomfortable and unsafe than you should not invest in mutual funds.
Mutual funds invest their money in stocks, Govt. securities, corporate bonds, etc.
These securities prices fluctuate with market dynamics and other economic factors, therefore mutual fund NAV also changes frequently, i.e. daily.
Reason# 3
If you are looking for fixed returns
If you are looking for a fixed return than ideally, you should avoid investing in mutual funds.
Mutual fund returns keep on changing with market fluctuation, economic parameters, and market dynamics.
Therefore like fixed income instruments, a mutual fund does not give fixed returns.
However, you can opt for the withdrawal of fixed sum through SWP.
Reason # 5
When you want High Return in a very short span of time
Raman’s friend was getting double-digit returns from his investments.
Seeing such a good return, Raman also got fascinated and invested as of his friend.
But after a year or so, his heart sank to see negative return.
This made him nervous and anxious about his investments as he required money for his son’s education.
Can you guess here, what’s so wrong with his investments?
Duration: He invested without understanding the duration of the investment.
The risk associated with a particular scheme: Although mutual fund schemes give good returns.
But it is mandatory to understand the investment and should not invest just seeing the return.
Therefore it is advisable to invest as per your risk, time horizon, and other requirements.
Reason # 6
When you do not understand Mutual Fund Working
It is ideal to understand the scheme completely before investment.
From Raman’s example given above, it is quite evident how high returns may turn to low in a short span of time.
You should not invest just seeing the short term performance/Random performance of the mutual fund
Conclusion
Mutual funds are an extremely beautiful investment product to invest in. But the understanding of mutual funds is very necessary.
