Mutual Funds remain a mystery to most Indians. General advice to remain invested for long combined with daily fluctuations in the market makes it an unnerving choice for many.
However, most of this fear is unfounded. Mutual Funds are definitely not totally secure, but they are still the best investment class available to individual investors.
You can avoid the losses and increase your chances of enjoying the upside if you can follow some basic rules of investing.
1) Time is money
Most of the individuals do not have any particular timeframe for remaining invested in MFs. It is important to have a timeframe and invest according to the timeframe. Mutual funds historically have given good returns in the long-term but if your timeframe is short then you need to go for the conservative options within MFs.
2) Lack of information
Many individuals invest by looking only at the past performance of the scheme. What they generally ignore is the risk color that is assigned by us to the scheme. Risk color is meant to explain the fluctuations you should expect in a scheme.
3) Start trading instead of Investing
Trading and investing are two distinct way of investing. Trading generally means speculating on market movements and profiting from short-term market movements. It is a highly specialized job and requires a high-risk appetite. Most of us invest and expect our money to start growing immediately. This is a trading mindset. When the money does not grow, we panic and withdraw our investments. When we are investing, we are looking for long-term gains.
More seasoned investors believe in the Indian growth story and expect the economy to keep growing at a high rate for the next 30 years.
If India grows it is very likely that our equity markets will also grow, as has happened in the past.
We are here to help you select the schemes that help you balance your goals, timeframe and risk/return appetite.
On a personal note:
I have a friend who had invested a significant amount in mid-2007. The market crashed around Jan 2008. He lost a significant proportion of his investment. He wanted to sell all his investments and called me for my advice. I told him to hold on to his investments and if possible invest more. He was not convinced, so I gave him an offer (which I can only give to a friend). The offer was simple, he would have to hold on to his investments for 10 years and I would cover whatever would be his inflation adjusted loss. And if he is happy with his investment he would take me for a luxurious holiday. Last week, I went for an all paid holiday with my family.