4 Reasons Why You Should Not Invest in Mutual Funds
Mutual funds may be one of the most sought after investment avenues after conservative investment schemes. A lot of individuals are moving away from traditional investment instruments like bank fixed deposits, public provident funds, post office savings scheme etc. and switching to mutual funds. Even people who believed gold to be an important investment source are now deploying their money in mutual funds in a systematic and disciplined manner. People have now started to realize that fixed interest offering instruments are offering low returns, as low as 4%-5% whereas mutual funds have offered returns as high as 15% in the past.
Although there are so many advantages of investing in mutual funds, here are top 5 reasons why you should not invest in them –
Do not invest if you want high returns
Although it is true that mutual funds do not guarantee returns and they can be extremely volatile for investors with a short term investment horizon, they have offered exceptionally high returns in the past. Mutual funds have the tendency to generate inflation-beating returns in the past. Inflation is your biggest enemy as it has the potential to eat up all your savings. Due to inflation, money has lost its value over time and certain things that cost a certain amount today, they will cost twice as much in the near future. Inflation is something all of us have to deal with, but we have the opportunity of generating long term capital appreciation through systematic and long term investing in mutual funds. Do not invest in mutual funds if you do not want inflation thrashing returns.
Do not invest if you don’t want to earn long term capital appreciation
Mutual funds like equity funds are volatile in nature. A slight change in the current markets causes a direct impact on the performance of an equity scheme. The underlying securities of an equity mutual fund usually consists of company stocks. The share price of stocks change every second during live trading hours and this is bound to impact the performance of the scheme over the short term. However, in the long run, equity schemes can beat volatility and offer returns twice as much as any other investment scheme has to offer.The current interest rate offered by bank account is 5% whereas equity funds can offer annual returns worth 15%. Now imagine the wealth you could create if you remained invested in equity funds for 25-30 years.
Do not invest if you do not want professional management
The beauty of mutual funds is that even a ‘know-nothing’ investor can invest their money and get themselves a chance to earn potential capital appreciation. Mutual fund houses hire experienced fund managers who manage your money and money of all the other investors who have invested in the same fund as you have. Fund managers have vast experience in various markets like equities, debt, and derivatives. They predict market movements and make investments, accordingly, saving investors from the hassles of understanding the markets. All an investor has to do is buy units in the mutual fund and the fund managers will buy and sell stocks on their behalf to earn capital appreciation. If you do not want a professional handling your money, don’t invest in mutual funds.
Do not invest if you do not want flexibility with investment sums
Mutual fund investors need not have large investment capital to start investing in mutual funds. They can opt for Systematic Investment Plan, an investment approach where one can invest small fixed sums at regular intervals. This ease of investment approach allows investors to manage their monthly expenses and at the same time invest fixed sums regularly through SIP. If you do not want to allow your investments to compound over the years and grow into a sizable corpus, do not invest in mutual funds.
