Mutual Fund Sahi Hai?

Any catastrophic event can make every investment worthless

sajjad bazaz
Srinagar, Publish Date: Sep 25 2018 10:17PM | Updated Date: Sep 25 2018 10:17PM
Mutual Fund Sahi Hai?Representational Pic

Over the past few years, especially after demonetization, one of the most popularized financial products has been the Systematic Investment Plans (SIPs). Mutual Fund companies have been promoting the 'charm' of SIPs through cleverly produced advertisements (ads) run both in print and electronic media, including the social media. Currently, Mutual Fund Sahi Hai campaign is influencing the retail investors' decision luring them to invest almost blindly in mutual funds through SIPs. 

Notably, SIP is simply a route that leads the investors to invest a fixed amount regularly in mutual fund schemes, mostly in equity mutual fund schemes. Here the investors do not need to invest in lumpsum, instead they can stagger their investments in equity mutual fund schemes over a period. Actually, the SIP has been designed to get small  and salaried investors, who basically don't possess financial strength to invest in lumsump, into the fold of equity market. 

Investment in mutual funds especially via SIP route is presented safe as well as most profitable investment through these ad campaigns. The impact has been so powerful that banks' recurring deposit (RD) scheme is receiving mild response from the depositors now, as most of their depositors have been preferring SIP over RD scheme.

If we look at the growth of mutual fund industry in the country, we find a growth of 30% in one year in the assets of the industry. The assets have grown from Rs 16.46 lakh crore in December 2016 to a record Rs 21.37 lakh crore in December 2017. Investors are putting in more than Rs 6,200 crore a month into equity mutual funds via SIPs compared to Rs 1,950 crore in April 2014. (Source Economic Times).

Now the question is about the safety of investment in mutual funds, especially in SIP. Does the growth in the mutual fund industry mean growth in wealth creation for investors'? 

While looking at the market scenario, mutual fund management is facing rough weather and most of their schemes have been under- performing. A report reveals that 'around 44 per cent of the open-ended diversified equity mutual fund schemes have failed to beat their benchmark'. An open-ended mutual fund scheme is one that is available for sale and purchase on demand at net asset value (NAV). These schemes do not have a fixed maturity period. 

Normally, investing money in a bank through schemes like RD lends a comfort to the depositor that the money is safe in the bank as it stands insured and there is no such history on record when depositors' money was not returned by a bank on demand. On the other hand, investment in mutual funds is not insured. We always hear the fund managers talking of high returns in mutual fund schemes, but hardly we listen any probability of losing the investment from them. 

So investment in mutual funds and through SIP does not guarantee that investors won’t lose money. In fact, in certain extreme circumstances investor could lose all money. Notably, every such scheme by virtue of regulations carries a disclaimer notifying that investment can lose value. While mutual funds offer the protection of investing in many stocks, that protection could fail in the event of a bad market.

In other words, there could be situations causing complete loss scenario. For example, any catastrophic event can lead to failure of economy, making every investment worthless and wipe out all the money invested in a mutual fund, be it SIP also. Another issue is possibility of a fund manager turning dishonest and get involved in embezzling the funds. Then there is also possibility of having an inefficient fund manager. In this situation, a fund could simply be mismanaged and result in loss of investors' money. 

Now, in the given scenario, these small/retail investors need to be careful while choosing a scheme like SIP to board the mutual fund industry platform. They should park their money in such schemes which have been consistent in performance.  Any short-term scorching performance of a fund should not be taken as a basis for investing in the scheme. Time horizons for performance review as well as for achieving objectives need to be longer.

Meanwhile, investors don’t need to panic every time their mutual fund goes down in value, unless there’s some bad scenario that makes them think their investment is in trouble. Any fund can go down in value temporarily. When there is a drop, investors should immediately look at the scenario to check if there’s something they should be concerned about. Otherwise, that would merely be normal movement of the market.

 

(The views are of the author and not that of the  institution he works for)

 

sajjadbazaz@greaterkashmir.com

 

 

Latest News

  1. An MLA was told to be part of govt or prepare for arrest by NIA: Omar Abdullah on horse-trading
  2. An MLA was told to be part of govt or prepare for arrest by NIA: Omar Abdullah on horse-trading
  1. Disgruntled Muzaffar Baig holds meeting with Mehbooba Mufti
  2. Disgruntled Muzaffar Baig holds meeting with Mehbooba Mufti
  1. Vijay Mallya must be extradited: London court
  2. Vijay Mallya must be extradited: London court
  1. BJP built tallest statue of Patel, but could not construct Ram temple: Omar Abdullah
  2. BJP built tallest statue of Patel, but could not construct Ram temple: Omar Abdullah
  1. RBI Governor Urjit Patel quits
  2. RBI Governor Urjit Patel quits
  1. Former MLA Tangmarg Abbas Wani resigns from PDP
  2. Former MLA Tangmarg Abbas Wani resigns from PDP
  1. Renowned historian and former Jamia Millia VC Mushirul Hasan passes away
  2. Renowned historian and former Jamia Millia VC Mushirul Hasan passes away
  1. JRL writes to UN chief, urges him to establish commission of inquiry into Kashmir rights abuses
  2. JRL writes to UN chief, urges him to establish commission of inquiry into Kashmir rights abuses
  1. Human Rights Day: Mirwaiz seeks help of world community to end Kashmir rights violations
  2. Human Rights Day: Mirwaiz seeks help of world community to end Kashmir rights violations
  1. On Human Rights Day, relatives of disappeared persons protest in Srinagar
  2. On Human Rights Day, relatives of disappeared persons protest in Srinagar
  1. India test fires Agni-V missile
  2. India test fires Agni-V missile
  1. Kushwaha quits NDA, resigns as Minister
  2. Kushwaha quits NDA, resigns as Minister
  1. Woman dies after falling from Ferris wheel at UP fair while clicking selfie
  2. Woman dies after falling from Ferris wheel at UP fair while clicking selfie
  1. Two drug peddlers arrested in Jammu and Kashmir's Rajouri
  2. Two drug peddlers arrested in Jammu and Kashmir's Rajouri
  1. Modi govt considers farmers as liability: Rahul Gandhi
  2. Modi govt considers farmers as liability: Rahul Gandhi
  1. JRL calls shutdown in poll-bound areas of Kashmir on Tuesday
  2. JRL calls shutdown in poll-bound areas of Kashmir on Tuesday
  1. BJP expels dissident leader after SC junks his plea against governor’s decision to dissolve JK legislative assembly
  2. BJP expels dissident leader after SC junks his plea against governor’s decision to dissolve JK legislative assembly
  1. Indian diplomat walks out of SAARC meeting in Pakistan over PaK minister's presence
  2. Indian diplomat walks out of SAARC meeting in Pakistan over PaK minister's presence
  1. UP woman locked inside home by son, dies of hunger: police
  2. UP woman locked inside home by son, dies of hunger: police
  1. Clashes erupt in Hajin after burial of slain teenage militants
  2. Clashes erupt in Hajin after burial of slain teenage militants
  1. Thousands attend funeral of slain teenage militants in north Kashmir’s Hajin
  2. Thousands attend funeral of slain teenage militants in north Kashmir’s Hajin
  1. SC dismisses former BJP legislator's plea challenging dissolution of Jammu and Kashmir Assembly
  2. SC dismisses former BJP legislator's plea challenging dissolution of Jammu and Kashmir Assembly
  1. India beat Australia by 31 runs in Adelaide Test
  2. India beat Australia by 31 runs in Adelaide Test
  1. Brexit deal: Theresa May faces fight for her political life on Tuesday
  2. Brexit deal: Theresa May faces fight for her political life on Tuesday
  1. Role of military limited, solution of Kashmir issue only through politics: Army commander
  2. Role of military limited, solution of Kashmir issue only through politics: Army commander
  1. Kashmir shuts on JRL call against human rights violations
  2. Kashmir shuts on JRL call against human rights violations
  1. Pakistan continues to harbour militants that turn around and kill American soldiers: Nikki Haley
  2. Pakistan continues to harbour militants that turn around and kill American soldiers: Nikki Haley
  1. 'I can't breathe', Jamal Khashoggi's last words at Saudi consulate
  2. 'I can't breathe', Jamal Khashoggi's last words at Saudi consulate
  1. Mughal road, Srinagar-Leh highway closed after fresh snowfall in Kashmir
  2. Mughal road, Srinagar-Leh highway closed after fresh snowfall in Kashmir
x
This site uses cookies to deliver our services and to show you relevant news and ads. By using our site, you acknowledge that you have read and understand our Cookie Policy, Privacy Policy, and our Terms of Service.That's Fine