What are the disadvantages of mutual funds? In our last article you All Benefits of Mutual Funds You have already learned about how you can double your money and get a good amount.
Now we will give you complete information about the disadvantages of mutual funds so that you invest in mutual funds only after understanding all the things well and you do not have to face any risk. Then let us know in this article that in the end, are there really any disadvantages of mutual funds or not?
Disadvantages of investing in mutual funds
1. Returns not guaranteed
There are many such investment options available in the market which give you a fixed return. But this is not the case in mutual funds, the profit of mutual funds is directly related to the ups and downs of the stock market. There is always risk in the stock market. This is the reason why the benefits of mutual funds also keep fluctuating.
If you think that you will get huge profits from mutual funds in a short period of time then it is your misconception. Because you cannot make profits in mutual funds in a short time, for this you have to invest your investments in mutual funds for a long time, only then you can get big profits.
2. Cost of Mutual Funds
Some money in the fund invested by us is given to the fund house in the form of expense ratio to handle the mutual fund. If you invest for a short period, then this cost will cost you less, but when you invest for a long time, it becomes very high. Therefore, whenever you invest in mutual funds, before that get all the information related to the expenses of mutual funds.
3. Taking the Exit Load
If you withdraw the mutual fund investment within 1 year, then you will have to pay 1% exit load on it, this is a very small part of the NAV. The purpose of applying Exit Load is that the investor does not go out because many people enter and exit the schemes. It is useless for those people who want to withdraw their money from mutual funds quickly.
4. Lock-in period
Lock in period means that you have to deposit your invested money for a fixed time and during that time you cannot withdraw that money. If you withdraw that money, you may incur a loss on your investment.
Although lock-in period is not imposed on all schemes but there is a lock-in period in close ended schemes and elss schemes. That’s why you should always invest that money which you do not need immediately, otherwise you will have to face problems when you need money.
5. Tax on Mutual Fund Returns
You also have to pay tax on mutual fund schemes, which reduces some percentage of your profits. If you invest in equities for less than 12 months, you will get 15% tax as short term capital gain.
And if you invest for more than 12 months then long 10% tax is to be paid as term capital gain, so while investing in mutual funds, you should try to keep your invested amount in the stock market for a long time.
6. Lack of Control
As you all know, we do not have any control over the money that is invested in mutual funds, rather it is controlled by the fund manager. He puts our investment in the stock market or other market according to his wish.
It is stipulated for all investors that their invested money will be handled by the fund manager itself, apart from this the facility of fund manager is given by taking some money from you.
7. Loss from Direct Investment
Investing in Mutual Funds requires an investor to have technical knowledge, which means that the investor should know about the market conditions and know how mutual funds work.
If the investor does not understand these things, then there is a possibility of mistakes in making direct investments. Direct investment is a better option to get higher returns, but without understanding, it can be foolish to indulge in it.
8. Mistake in choosing the scheme
Different mutual fund houses in India offer many schemes. It is not an easy thing for investors to choose the right scheme. Most of the investors choose the scheme by looking at the past performance and not keeping the future performance in mind.
In this way, they are deprived of getting the potential returns that could have been obtained by investing in any other scheme, so special care should be taken that you invest in mutual funds with the best returns so that you get the benefit of it.
Diversification in mutual funds has benefits, but at times you may also have to bear the loss.
Even when the price of a stock doubles, the value of your mutual fund investment does not double because your investment is done by the fund manager in different stocks and the stock that doubles in value is your mutual fund. There is a small part of your investment which you cannot change.
What is Exit Load?
Tax on the amount invested within 1 year.
What are the disadvantages of Mutual Funds?
Returns on many investments are not guaranteed.
What are the benefits of investing through SIP?
By investing in mutual funds through SIPs, you do not risk your entire investment at one go.
What did you learn today?
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