Indians save around 30 to 35% 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 hits 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 client believes the advice given by agents and has no time put his efforts to study and compare the products recommended. Most of the time it is seen that agents pushes the product, which gives them higher commissions. On one hand SEBI has abolished entry load in mutual fund products and on the other IRDA has capped ULIP charges. Hence traditional plans have again become fancy of the market.
Where people invest:
It is a tradition that almost around 85% people in India invest their surplus funds in Bank Fixed Deposits, Postal Schemes and contractual insurance products. Approx. 5% invests in Gold, 5% invests in Real Estate and balance 5% or less invests in equity either directly in stock market or through mutual fund schemes. Looking at inflation nos., 85% of investment done in traditional forms is unlikely to beat inflation post tax. There is lack of investor’s education and awareness. The quality of advice, which is available in the market, is also poor. Government is also not keen to change this scenario. We are shifting from miselling to wrong buying as 50% of agents have stopped canvassing business because of low commissions in mutual funds. Investors are also not willing to accept fee based system and avoid quality advice given by financial planners.
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.
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 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.
5) The procedure to invest in mutual fund is also very simple and also schemes are highly liquid.
6) The service available today is also one of the best in India and you can excess all your investment details online.
7) 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.
8) 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.
9) 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.
10) Mutual Fund Schemes are most tax efficient instruments available in India.
Most of the people think that mutual fund means equity investment. This is not true. Mutual Funds offers both 100% debt to 100% equity and also hybrid products with combination of equity and debt. Mutual Funds also came out with Gold ETFs, 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 funds 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 15% return in the past. Equity schemes always out perform the other asset class in the longer run.
This article first appeared at myiris.com on 28.06.2011
http://www.myiris.com/financial/storyShow.php?dir=2011/06/28/&fileR=20110628143150194
