Ways to Overcome the fear of investing

India has a low level of mutual fund penetration relative to other major developed economies; the mutual fund AUM is around 10.9% of GDP (FY 2020) where as it is at 63% for major developed economies for the same period. This is because there is a high preference for investing in traditional investment options particular in physical assets such as Real-estate and Gold in India. However, over the last decade, there is a steady change in the preference for investing in India with more investors considering financial assets for achieving their long term goals over the physical assets. Indeed, mutual funds are one of the fastest growing and major beneficiary of this shift.

Although there is a change in preference for investing, there is also some element of fear when it comes to investing in new-age products, perhaps there is still a dominance of physical assets or traditional investment products over the financial assets. This article aims to overcome the fear of investing:

Markets are not safe

This is one of the biggest fears around equity investing, which makes the retail investors to shy away from investing in equity markets or equity based funds. Many investors fear loss of capital, as there is no assurance given on returns, and the principal amount invested. However, one must take into the consideration of risk-reward trade-off while making this comparison. 

Investing through mutual funds can be one method to lower the investment risk. Mutual funds provide professional fund management for the invested amounts. They are also typically diversified, hence reducing the overall risk.

Markets are volatile

One may also be worried about the volatility of the underlying investment, which is normally higher than the safer investment options especially in the short-term.  However, equity markets are potential for wealth creation over the long-term horizon. Historically, equity markets are also exposed to several shocks including geopolitical tensions, economic slowdown, health scares, etc.

Risk of investing in equity markets or equity based funds may also be minimised by investing on regular intervals which can act as an edge over tackling market volatility. Investing regularly may also provide the benefit of averaging the cost to the investors, as the investing value gets averaged over time with investments made at different levels.

Mutual funds provide a convenient option to invest regularly through Systematic Investment Plans (SIPs), wherein one can register an SIP towards specific mutual fund schemes. The investors can register such an SIP for an amount as low as Rs. 100 per month, however, minimum SIP amount may vary from mutual fund schemes to schemes. The amount would be deducted from the bank account and invested in the specified mutual fund scheme on the pre-fixed dates. Such automation eliminates emotional bias in investing. Further, consistency in investment may help investors convert small drops of water into an ocean over the longer term.

Mutual funds only offer equity-oriented investment exposure 

Several investors may not consider mutual funds for investing, as they understand mutual funds to only offer equity-oriented investment exposure. In contrast, mutual funds provide a wide-range of schemes across asset class vis., equity, debt, commodity, real estate etc. which provides varied investment exposures. Investors can choose to invest in mutual fund schemes best suiting their risk appetite, financial goals, and time horizon. 

Investors who prefer periodical cash flows or regular income on their investments, one may consider investing in debt oriented funds. An investor who may look for marginally higher returns over the traditional investment options and willing to take slightly higher risk may choose to invest in hybrid funds which are a combination of both equity and debt securities. One must maintain an optimal asset allocation within their investment portfolio to balance their portfolio risk profile and suitably align it with their risk profile. 

Disclaimer:

This material is part of Investor Education and awareness initiative of UTI Mutual Fund.

The information herein should not be considered as 'investment advice'. Reader is requested to make informed investment decisions and consult their Mutual fund distributor or financial advisors to determine the financial implications with respect to investing in Mutual Funds 

SIP is a process for a disciplined investment of a certain amount on a pre-decided date in a specific mutual fund scheme, regularly over a period of time.

Mutual Fund investments are subject to market risk, read all scheme related documents carefully

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