The reason people invest in Mutual Funds is because they don’t have much time and the ability to manage their money. They choose a professional fund manager who invest on their behalf in equities, debt , or in gold .
However many people, besides just selecting a good mutual fund, also tend to go one step further and try to ‘trade’ with their mutual fund investments and try to time the market.
When they feel markets are high, they send in redemption requests thinking markets would come down and when the markets are falling they tend to panic and once again send in redemption requests thinking everything is headed for doom.
Or alternatively others keep switching from one mutual fund scheme to another within a matter of weeks. They exit one mutual fund and enter another; thinking they are being smart and can get more returns this way.
Now part of the reason people tend to trade and move in and out of mutual funds so rapidly is because mutual fund distributors and brokers promote this type of thinking. If you don’t move in and out of mutual funds rapidly, your broker won’t make any money. Remember that everybody works in his or her own best interest, and the best way a broker can make more money is by letting you churn your portfolio.
The entry load you pay is income for your broker. Of course many of you might have started investing directly in a mutual fund (After 4th Jan 2008 ) and might not have to pay the entry load, however things like exit loads would still prevail in the short term.
You might make more returns than a bank FD, even if you churn, but you can make much more if you don’t trade mutual funds. You can save the excess entry load and exit load, which you would have to pay. You can save time and effort.
And also the entire logic of investing in a mutual fund is to let the fund manager analyze and take care of your money. If market correct the fund manager has to decide what to do and not you. All you need to do is invest regularly in quality mutual funds. In case you have the time and inclination to do research, why not start investing directly in stocks after doing research?
The best time to exit your investments is when you need the money or when you feel the investment has no scope to go up further. In case you feel the Indian economy and Indian companies are having fundamental problems in the long run, that is when you should exit your investments.
Always remember that no matter what investment you make; in the longer term risks always reduce if you have invested in quality. In order to be truly wealthy you need to have a long-term vision and belief in India’s economic growth.
All those of you who don’t have the time or inclination to learn more about investing in stocks directly, mutual funds are a great way to invest and be part of India’s economic growth.
"Just remember investments are like seeds, and will grow into wonderful trees only if you give them time."
Source : Why “Trading” in MFs is not the best thing to do By author Yogesh Chabria On moneycontrol.com
Friday, February 22, 2008
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