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Lot of reasons why very small number of people investment in mutual funds but main reason is that people do not understand what Mutual Fund is and there has been very little effort from the industry to simplify it for consumers/investors.
From stocks, bonds, shares, money market securities, to the right combination of two or more of these, however, every option presents its own set of challenges and benefits. So why should investor consider mutual funds over others to get more returns?
Mutual funds allow investors to pool in their money for a diversified selection of shares, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more.
Whether the objective is financial gains or convenience,mutual funds offer many benefits to its investors.
1. Simplicity: Mutual Funds Are Easy to Understand
Anything can be made into something more complex than it needs to be and mutual funds are no exception to this truth. However, mutual funds require no experience or knowledge of economics, financial statements, or financial markets to be a successful investor.
For beginners, here is a simple definition of mutual fund: A mutual fund is an investment security type that enables investors to pool their money together into one professionally managed investment. Mutual funds can invest in stocks, bonds, cash and/or other assets. These underlying security types, called holdings combine to form one mutual fund, also called a portfolio.
2. Accessibility: Mutual Funds Are Easy to Buy
Mutual funds are offered at brokerage firms, discount brokers online, mutual fund companies, banks, and insurance companies.
Even beginning investors can easily open an account at a no-load mutual fund company, such as Vanguard Investments, and open an account within minutes.
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3. Diversity: Mutual Funds Have Broad Market Exposure
One mutual fund can invest in dozens, hundreds, or even thousands of different investment securities, making it possible to achieve diversification by investing in just one fund. However, it is smart to diversify into several different mutual funds.
4. Variety: Mutual Funds Come In Many Different Categories and Types
As you grow your portfolio of mutual funds, you will want to diversify into various mutual fund categories and types. You can invest in mutual funds that cover the main asset classes (stocks, bonds, cash) and various sub-categories or you can even venture into specialized areas, such as sector funds or precious metals funds.
5. Affordability: Mutual Funds Have Low Minimums
Most mutual funds have minimum initial investment requirements of $3,000 or less. In many cases, if the investor initiates a systematic investment program, where they have a fixed dollar amount or fixed number of shares purchased once per month, the initial investment can be as low as $1,000.
6. Frugality: Mutual Funds Cost Less to Manage Than Other Portfolio Types
Costs as a percentage of assets in the portfolio are usually lower for an actively-managed mutual fund when compared to an actively-managed portfolio of individual securities.
When you add up transaction costs, annual fees paid to a brokerage firm, and the cost for research tools or investment advice, mutual funds are less expensive than the typical portfolio of stocks. Other variables influence the cost of managing a portfolio, such as the amount of trading activity, the size of transaction, and taxes.
Lets start from the start.
In conclusion,
Lack understanding from people about what the product is and how to use it for their benefit caused by how industry has failed to communicate the category essence and how industry is structured - making things complicated instead of simplifying for investors;
There are people who have achieved their goals and made money from investing in mutual fund and there are people who have lost money but to get more people to invest in the fund and stay invested in the funds - there is once thing industry has to do : Simplify the journey for people.
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