5 Reasons why People are Afraid of Investing in Mutual fund or Stock Market?
We always hear about stocks; mutual funds and we hear people talking about “market is going up” and “market is going down”. Somewhere we all are afraid of loosing money. Of course, we earn money to fulfil our needs, dreams so we can’t risk of losing it. But on the other side, if we want to grow money and achieve financial goals in life then we need to invest money at right place. There are many options available for investment. But in India, people are scared of investing in mutual funds and stock market.
The Association of Mutual Funds in India (AMFI)’s latest data shows that less than 1.5% of Indians invest in mutual funds. And, 45.7 percent of the households in the United States owned mutual funds.
Let’s read why people are afraid of investing in mutual fund or stocks in India.
1. Lack of knowledge
Many people don’t understand how stock market works, how the stock is bought or sold. Many people don’t understand how mutual funds work. And many people want quick profit. But one needs to have patience to buy or sell the stock. Mutual funds are recommended for long term investment.
Sometimes, a random friend suggests some stock and you invest blindly without studying about it. You should take out some time to read about the company. For example, read balance sheet of a company which gives you knowledge of how much a company owes or owns. So, gather information of any stock so there are less chances of making losses before taking any decision. You should read about mutual fund too as there are lot of options available in mutual fund investment.
People should know how to read details about any stock. Or, people can take advice from experienced advisor who understands and who is in continuous process of reading about market.
2. Lack of trust
We read about so much volatility in share market. We read about some other scam every year. Harshad Mehta 4000 crore security scam in year 1992 is very famous scam in India. Though Harshad Mehta scam activated many changes into India’s financial regulatory system. But, it’s difficult to trust for investing our hard-earned money as we don’t want to lose it.
Sometimes, people have bad experience of loosing money once so people don’t trust easily again for investing.
Read also: A Beginners Guide to Systematic Investment Plan
3. Options of other investments
In India, if we look around, we find people investing in gold, real estate, fixed deposits rather than mutual funds or shares. As people find it safe to invest in gold, real estate or FDs. Indians prefer safer option when it comes to investing. And because of volatility and lack of knowledge, people find stock market and mutual funds risky option.
4. Capital
Many people think that to make big money, they have to invest a lot of money. But, all big investors tarted from small amount of money and grew capital by reinvesting the profit earned from investment. So, you can start with small investment to grow your money. You can start by just investing Rs 1000 per month (SIP) in mutual funds and you can see your money growing.
Below is the table to show how much a person grows his money through SIP.
| Duration | SIP Amount | Amount Invested | Future Value |
| 4 years | 5000 | 2,40,000 | 2,96,059 |
| 5 years | 5000 | 3,00,000 | 3,90,412 |
| 10 years | 5000 | 6,00,000 | 10,32,760 |
| 12 years | 5000 | 7,20,000 | 13,93,708 |
| 15 years | 5000 | 9,00,000 | 20,89,621 |
| 18 years | 5000 | 10,80,000 | 30,27,840 |
| 20 years | 5000 | 12,00,000 | 38,28,485 |
| 25 years | 5000 | 15,00,000 | 66,89,452 |
| 30 years | 5000 | 18,00,000 | 1,13,96,627 |
| 35 years | 5000 | 21,00,000 | 1,91,41,384 |
Read also :
5. Risk taking capacity
In India, everyone doesn’t want to take risk. Risk capacity of everyone is different as everyone has different financial goals, lifestyle. So, they still invest in safer instrument like gold or bond where risk is less.
Though mutual funds and stocks give higher return, but these terms are connected with word “risk”.
Now, let’s read Why anyone should invest in mutual fund or stock market.
- Smaller amount can be invested
If you want to invest in property, you need to have a big amount or you can take loan from bank which you need to repay with interest. But you can invest smaller amount in mutual funds or shares depending upon one’s financial position. Mutual funds offer SIPs (Systematic Investment Plan) where one can invest a fixed amount as small as Rs. 250/- monthly or quarterly – similar to that of recurring deposits in banks. Now, you can buy stocks, mutual funds online through application or website which makes it easier to buy and sell. - Liquidity
Liquid assets means assets which can be quickly and easily changed into currency. Stocks are considered as liquid asset. Open-ended mutual funds offer great flexibility and the investor can redeem the units at any point in time. - Stability
Investing in mutual fund is more stable as compared to share market as fund is diversified and experts are there to take decision to invest your fund. - Diversification
You can invest a small amount of money in diversified fund through mutual fund. It depends on the fund which you select. If you select balance fund then it invests in both debt and equity fund. So, it makes your investment less risky. - Lot of options available
You have lot of options available if you think of investing in mutual fund. There are many types of mutual funds.
Above diagram shows the types of mutual funds available so you can select as per your financial goal, risk capacity.
There are about 5,000 listed companies on the BSE, while NSE has more than 1,600 companies listed on its platform.
Read also :
- SHARES OR MUTUAL FUNDS? WHICH IS A BETTER INVESTMENT VEHICLE FOR COMMON PEOPLE?
- 9 Tips How to Manage Your Finances in a Systemic Way
Conclusion:
So, we understood, why people are afraid of investing in mutual funds or stock market. Instead of trusting someone’s suggestion, we need to read and clear our basic terms of stock market and mutual fund. Or, you can take help of any expert who can explain you “why to invest”, “where to invest”, “how much to invest”. If you invest wisely, you won’t lose money. In fact, you can grow your money with right decision. Internet has made it easy for everyone to study and read about market easily.
B4investing is trying to put all terms related to investment in simple words. And we can advice you as we have experts in team.
