Indians save around 30% of their income and are very
good in saving ratio. Our saving ratio is one of the best across world, but
when it comes to investment most of the people fail and make major mistakes
which hit them at later part of life. Investors today are confused and
undecided about the investment decisions. Most of the investors invest without
knowing the features of the products and also the risk attached to that. Ours
is agents driven market, agent’s recommends clients without knowing their
financial goals and future needs. They are more interested in closing the sale
rather than advising and educating clients. On the other hand clients are not
ready to pay the fees for the advice and have no time to put their efforts to
study and compare the products recommended. At the end most of decisions are
taken on the advice given by agent or distributors of product. It is seen that in
most cases agents pushes the product, which gives them higher commissions.
Where people invest:
It is a tradition that almost around 85% people in
India invest their surplus funds in so called safe products like Bank Fixed
Deposits, Postal Schemes and contractual insurance products. Looking at
inflation nos., 85% of investment done in traditional forms is unlikely to beat
inflation post tax in the long run. There is lack of investor’s education and
awareness. The quality of advice, which is available in the market, is also
poor. We are shifting from miselling to wrong buying as 50% of agents have
stopped canvassing mutual fund business because of low commissions in mutual
funds. The data shows that even there is decline in life insurance agent’s
force due to lower commissions in ULIP product.
Mutual Fund is best option:
Investors always look for good investment opportunity,
which gives good returns, but at the time people also want their investment to
be safe and secure. Looking at present financial distribution system and
quality of advice available in the market, I strongly believe that Mutual Fund
Investment can help a lot to investors. Mutual Fund is a mechanism of pooling
resources from general public and investing collected funds in debt or equity
instruments in accordance with the objectives as disclosed in the offer
document.
Most of the people think that mutual fund means equity
investment. This is not true. Mutual Funds offer both 100% debt to 100% equity
and also hybrid products with combination of equity and debt. Mutual Funds also
came out with Gold ETFs and Gold Funds, which are much better option compared
to physical gold. The past performance of the schemes is also available since
inception of the fund. The past performance may not sustain in future but it
tells the quality of the fund’s performance in different cycles of the market,
which can help investors before taking any investment decision. Mutual Funds
schemes are market related and does not offer any guarantee of returns, which
keeps away most of the investors from investing in mutual fund schemes. One has
to understand how this schemes works & performs over a period of time and
what are risks attached to this. Even debt schemes had given good returns at
around 12% p.a. in last one year. Equity schemes always outperform the other
asset class in the longer run and beat inflation with a big margin.
Advantages of investing in Mutual Fund schemes:
1) Mutual Fund Industry is well regulated and
come under purview of SEBI. Mutual Fund Distributor has to compulsory pass the
exam for selling the products and is given best training by all the AMCs with
whom he is associated.
2) Mutual Fund schemes are easy to compare, as
the object of the fund is well defined. One can easily get the details of risk
involved in the scheme by reading offer document or KIM (Key Information Memorandum).
3) You get the benefit of diversification when
you invest through MF schemes. You get diversification across all sectors and
also among different stocks listed in the stock market. Diversification reduces
the risk of investment and gives better results in the longer run.
4) You can also diversify across three major asset
classes as you can invest in debt, equity and also in gold through mutual fund
schemes.
5) You get the advantage of professional
management. Experts in the industry called fund managers manage fund and try
their best to deliver good returns to investors.
6) The procedure to invest in mutual fund is
also very simple and also schemes are highly liquid.
7) The service available today is also one of
the best in India and you can excess all your investment details online.
8) You can start with very nominal amount of
Rs. 5,000 or SIP with Rs. 500 and get the advantage of long-term equity
investment.
9)
SIP (systematic investment
plan) option available in mutual fund schemes is always better for investing in
equity in the long run. You get rupee cost averaging, which lowers the average
cost and you get the advantage of power of compounding.
10) Debt products are also attractive if you
understand the interest rate cycles. In the falling interest rate scenario the
debt fund is likely to give double digit return.
11) A hybrid product available in the mutual fund
like MIP and Balanced Fund are also good for fresher’s who do not understand
the equity market but can start with lower exposure to equity.
12) Mutual Fund schemes are more transparent.
Daily NAV is declared. Portfolio of the schemes is also available every month.
There are many agencies that rate the mutual fund schemes depending on risk and
reward attached to the schemes.
13) Mutual
Fund Schemes are most tax efficient instruments available in India as mutual
fund investment in all asset class for a period of more than one year is
considered as long term for the tax purpose.
Direct Plans:
Now direct plans are also available in all categories
in mutual fund schemes which eliminate the distributor and reduce the overall
cost of around 0.45% to 0.65% p.a. This will automatically increase your return
over a period of time.
It is always
advisable to invest through mutual fund schemes depending on asset allocation
and time horizon. The only thing you must do is select the fund which is at
least three years old and a consistent performer and is in the top quartile in
the category. The other thing you must check is that scheme should beat its
bench mark index and performance should not fall below its benchmark index. It
is advisable to monitor and review the performance of the scheme at least once
in a quarter so that you can take corrective step if fund selected by you
starts none performing compared to its bench mark index. The advice of a
financial planner can also add value to your investment.
