Why Are Mutual Funds Still Not a Part of the Portfolio of Many Investors?
The end goal for every investor is to be financially independent. And today, more and more people are attracted to building wealth and becoming rich quickly. However, when you realize how long the process takes, it can be frustrating.
Mutual funds have been recognized as a strong investment choice for many years, and with them, you can invest in a wide range of stocks that would match your interests and needs.
Why should you prefer investing in mutual funds?
As Indian Mutual Fund AUM has grown, so have the investors’ interests. The last few years have seen a sharp surge in mutual fund assets as growth has increased by a multifold. We have closely watched mutual funds slowly becoming a part of an investor's portfolio. Today, investing in Mutual Funds is both easy and accessible to everyone.
India's mutual fund industry is growing, but it still has a long way to go before achieving the level of development we desire and project. The ratio of funds invested to GDP in India is about 17%, which is much lower than the 76% global average. Countries like the U.S., Canada, and Australia have ratios over 100%. This puts India's investment schemes at just around 5 times that of their GDPs when bank FDs are at around 75%. There are no doubts that India's mutual fund industry is poised for a lot more growth, and it pales in comparison even to bank FDs. According to the statistician report 'Consumer Spending Outlook 2022,' 31% of Indian households are likely to invest in mutual funds by 2022-23. The investing population is limited in a variety of different ways, and only 1/3rd of them will be inclined towards investing in funds within the next 4 years. We'll discuss some reasons why people are hesitant towards investing in mutual funds for this article.
The reasons you might want to keep your assets in cash or other assets instead of investing in mutual funds.
- Lots of people don’t know much about mutual funds.
The mutual fund industry has existed for more than 25 years in India, yet its awareness is limited to just tier 1 and tier 2 cities. Millions of Indians, including the educated population, still have no idea how mutual funds work. It's only because of recent mass media campaigns that they even know these products exist. Most people still don't speak openly about saving money or investment strategies because of India's culture and tradition. In other words, we're not too eager to explore new products and take risks. However, recent years have been a step in the right direction. We still have a very long way to go, though.
- Confidence in market-linked products can be low.
The risk of investing in mutual funds is one of the major hurdles for many investors. In fact, volatility and unfamiliar territory are the key reasons behind investor hesitation which mean that education and awareness about this great investment vehicle is also a challenge. Not just understanding the benefits of investing in mutual funds, but more importantly understanding that these investments involve varying degrees of risk. The reward may well outweigh the cost, but people feel confident when they can understand all aspects thoroughly ahead of time in order to make an informed decision.
- Poor distributors/intermediaries reach.
One of the most important factors in determining an investment option's success and growth is accessibility. More people are now aware of the benefits it provides, but there aren't as many who have access to intermediaries. Indians are most comfortable with individuals they can trust and have easy access to. This role can be played by intermediaries, who teach investors to invest in products they're interested in, which requires hand-holding and trust-building. Unfortunately, there aren't many mutual fund distributors in India and many towns don't yet have one. The reason this is important is that distributors play an important role in how much awareness there is around mutual funds, confidence in investing, and appealing to those investors who don't yet know about them.
Investing in mutual funds might seem like an overwhelming task, but there are hundreds of strategies to choose from, tailored to fit different investment needs. Before you invest, you need to be aware of all the risks and reward scenarios. It's important to have the right knowledge, education, and digital literacy.
Conclusion
In the end, it takes an informed community to break through myths and misconceptions with passionate conversations. You can help by removing some of these myths. By educating yourself or those around you, you are bringing change to our financial literacy. Let's make informed decisions and help others to do the same. Join a growing mutual fund investor community in India.