Fear Psychosis: 'Mutual Funds Prone To Market Risk'

"Successful Investing takes time, discipline, and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant." ~Warren Buffet


In today’s world, where inflation is at peak on one hand and on the other side countries face difficulties to keep a stable GDP. Banks in order to cope up with the situation started merging with one another. In such a midst, Middle-class earners get almost equal to “0” interest in savings if we compare it with the inflation rate. Day by day banks are reducing the savings, other deposits interest rate whereas the loan rate is rising up and up every now and then. So what’s the Solution?? The solution is “Mutual Funds”.

Mutual fund is one of the most modernized investment tools to counter inflation and growth of wealth at the same time. But the problem lies in the ignorance of the Investors. In India, 40 million population comes under middle class earners. It requires a lot of hardship to earn that money for that class of people. It is for this reason people in India are afraid to invest money in sources other than traditional sources. Banks in India hardly promote Mutual funds among their customers. Even in online banking the process of opening online mutual funds is not given in a simple manner. There are lots of paper works to do and it is time consuming in nature (1 month approx.). On part of Investors, many don't know what is a mutual fund, or what is the process of opening it. Some see advertisement of mutual funds with the disclaimer- “Mutual Funds is subjected to market risk” and they stop thinking about this topic, considering it a risky investment. These are not necessarily considered as drawbacks but open up scopes for simplification in the process and awareness of mutual funds among the Investors and savers. 

Mutual Funds is basically a broader concept. There are different types of mutual funds which are designed as per the needs of the Investors keeping in mind their risk capacity, return and security of the Investment. An investor can invest their money in lump sum or in installments popularly known as SIP(Systematic Investment Plan) which can be started with a minimum of Rs.500 and can increase their investment as per their convenience and investment capacity. There is no minimum duration for maturity. An Investor can redeem it at any time and within 3 working days your money will be in your bank account, only condition is that if an Investor redeems it before 3 years then it will deduct upto 1% as exit load. An Investor who wants to purchase the mutual fundscan approach the bank in which his/her  account is in operation and ask the authority in charge to open up a mutual fund. The personnel will brief you on the basics of Mutual funds with suggestions for  some schemes based on your needs. 

The prospective investor  choose and cross check it from reliable internet pages (eg. CRISIL Website, Money Control website etc.) He/she can review past performance as well as compare it in terms of ranking which are usually given in CRISIL Website and accordingly schemes whose returns are stable enough over the past years. Sometimes an Investor may also face some situation after purchasing, where principal amount might also deteriorate in the first few months in place of giving returns . In such a situation, don’t panic it will give you higher return in the long term as it follows the compounding effect stated by “Darren Hardy”. The basic mechanism of Mutual Funds is when you invest money, it purchases some units of that mutual fund scheme. So when price is falling (returns are low or negative) which means that you can purchase more of such units and vice versa, which will ultimately give you more profit in the long run considering more units purchased during the recession period.

Mutual Funds is one of the most flexible forms of Investment available in the investment world. If an Investor wants to get a higher return but can afford high risk, then go for equity schemes. If an Investor wants a moderate return with comparatively less risk, then go for a balanced fund(Combination of debt and equity). If the investor is conservative in nature, then the best option is only debt mutual funds schemes with least risk but also at the same time a comparatively low return but higher than bank saving deposits interest rates. “Investors age” also matters a lot while investing in any sources. If a person is between 20-35, he/she can opt for Equity schemes because at such age you can take risk in your life, earn huge profits and if coincidentally there is loss, you have time in your hand to recover the losses by working hard and again invest in some good companies. If you belong in the age group”36-50” then its better you prefer a balanced fund, because you have a family to look after and can’t take high risk as recovering losses will be a bit tough at such an age. Getting a moderate profit is suitable at this age considering the inflation rate. If an Investor belongs to the age group of above 50, always go for debt funds schemes which have least risk with reasonable return. It is the best option in the sense that average human being income sources reduce after this age which ultimately will affect your investment capacity and risk bearing capacity, besides this there will be some huge expenses like medical expenses, children marriage expenses, building construction expenses etc. to be borne. The above tips are purely based on the author experience, it may vary from person to person considering the type of jobs they do (public or private), position status, income sources, his/her dependents etc.

Mutual Funds is known for its “flexibility” and compounding mechanism. It is customizable as per the Investor’s needs and wants. In Nagaland, many people are still acquainted with the traditional sources of investments because of ignorance or risky investment fear psychosis. In these limitless opportunistic investment possibilities, if an investor invests in mutual funds and sustains their investment for a longer period of time (minimum 25 years), then he will be able to fulfill most of his dreams which he dreamt of.

“Investment is the commitment of money to earn a positive return through speculation not by Gambling”. 

Degree of Thought is a weekly community column initiated by Tetso College in partnership with The Morung Express. Degree of Thought will delve into the social, cultural, political and educational issues around us. The views expressed here do not reflect the opinion of the institution. Tetso College is a NAAC Accredited UGC recognised Commerce and Arts College. The editors are Dr Hewasa Lorin, Dr. Aniruddha Babar, Dr. Pfokrelo Kapesa, Webei Tsühah, Meren and Kvulo Lorin. For feedback or comments please email: dot@tetsocollege.org.