One leading mutual fund is doing a series on Myth busting about mutual funds. It is interesting to say the least. Let us look at each one of them:
Mutual funds are very risky.
Let me reiterate, yes it is very risky. Imagine the head of Research of a big pharma company wanting to invest in a mutual fund. How will he go about doing this?
You think he will visit the sebi website? amfi website? No. He will ask a colleague or a friend about how to invest in a mutual fund. Suppose he has been investing for long, he will act like an adviser and tell him “buy xyz, lmn and def funds – I made a lot of money in all these 3 schemes”. What has happened according to the law in this country is he has been mis-sold mutual funds.
The person who advised (so what if it was free?) did not do a risk analysis, need analysis, suitability analysis, so clearly it is a big big mistake.
The other friend could have asked him to meet an IFA. Omg..again he is going to get a sub optimal solution. Remember the IFA is working for himself, not for you. He gets a commission, so he is likely to give you products where he makes more money….
So he goes to a bank. There are enough bloggers who say that the worst way to invest is by asking a bank RM what to do. So that is out.
So what should the poor guy actually do? Well, he should go through the prospectus of about 4000 fund offers (remember bloggers are driven by greed – for money, recognition, fame, but not by good intentions). Then learn about asset allocation, goal setting, debt markets and equity markets, …etc. and then decide how much to invest where. Assuming he takes one week to read 3 fund details, by the time he invests the money it would be the 2nd birthday of his grand child.
So let me reiterate. Mutual funds are risky if you do not know how to invest and you do not have a good adviser to hand hold you during your initial investment years. Then you learn, then you earn.
Once you have climbed up, you can either thank the ladder, or kick it. Choice is yours. Sure, you do not need him now.
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