Capital market plays an important role in an economy of a country. There is liquidity, unpredictability and a great potential of risk and reward is also there when you invest in Stock Market. Current downward trend of Sensex/ Nifty 50 is an indicator for those persons who have incurred or likely to incur huge losses to ‘be aware’ while following dopey ideas circulating on various websites or generally received from some person. If you could get your money doubled in short time then it’s a ‘big gamble or speculation’. People get trapped in these dopey ideas some way or the other, and later on when the market doesn’t favour them, they regret their own decisions. If a person sitting on some news channel or some website giving tips for investing in some stock did have any sound basis and confidence, then he would have preferred investing rather than giving ‘gyaan’ publicly. In stock market many times expectations miss the reality.
Many people suggest me to do SIP in Mutual Funds, especially bank managers. Bank managers and many others who invest in mutual funds say affirmatively that MFs give higher return, some claim to be as high as 50%. I mean– 50% (or any other percent) of what? MFs mostly use CAGR (Compound Annual Growth Rate) model to reflect the rate of return instead of IRR (Internal Rate of Return). To my knowledge, between CAGR & IRR, IRR would give better picture of returns. But no one bothers, how the return is being calculated, they simply believe what is presented to them. I literally do not understand Mutual Fund, well that could be due to my brain’s limitations, but that doesn’t stop me to ask very basic questions like– when the MFs give higher return, then eventually investing in equity would give return higher than MFs, but that’s not the reality. Benjamin Graham has rightly prescribed that: “obvious prospects for physical growth in a business do not translate into obvious profits for investors.”
One might argue that MFs hire Fund Managers who are considered to be expert in analysing data quickly and make decisions wisely. That could be one way to convince that investing in MFs is highly profitable but there is no guarantee that money invested would yield high return. Sometimes negative returns are also witnessed; of course I’m aware that one need be invested for at least 3-5 years but considering that too some MFs have given negative returns and thus have eroded investor’s wealth to a great extent, while some have vanished from the shelf. Interestingly, most of the MFs data available online or offline covers just up to 5 years. Mutual Funds, in my opinion, are over-rated; one such reason could be more commercialization of MFs. I don’t say they are over-valued, instead I say they are simply ‘over-rated’ because the higher returns in which people are compelled to believe just make them feel great about themselves and nothing else. So who overrate it? People who dream about becoming wealthy with minimum hard work added with higher returns, further powered by usual obsession of earning more without much efforts.
Those who manage these funds work on their own assumptions of future returns. It might be supported by some theory or logical data but ultimately it’s “assumptions for future returns which is the sole guiding principle for these managers”.
When you don’t get something, stay away from it. That is the simple logic to safeguard your own wealth.
Do not forget that when you make a decision about investing in stock market, it is you who is solely responsible for all the unplanned and unexpected financial losses that could knock your door. Ideally, I believe, investors need be aware while selecting options to make investment. Caveat Emptor equally applies to investments too!
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