In a recent report, SEBI, the regulatory watchdog of the mutual funds industry, stated that around 50% of investors in regular plans sold or redeemed their units in under one year.
Money Assist, a leading mutual fund agent in Kolkata takes a look at this story as reported in The Economic Times.
Dropping out of investments sooner than 3-5 years is an alarming sign that people are looking for easy money and are gaming the system with hype.
This goes against the grain of prevalent money-making philosophy that most seasoned investors adhere to.
Typically, one stays invested in mutual funds for a period of 3-5 years, following which one can take a call on selling.
In fact, Warren Buffet, the investment guru for many, believes in having a long-term approach to investments.
So, what’s happening on the ground then? Why are Indian investors pulling out of investments within 2 years of investment? Let’s take a closer look.
Churning refers to the act of buying and selling mutual fund units with the intention of making short-term profits.
One of the suspected reasons for churning is the mis-selling of mutual funds by distributors. Dishonest mutual fund distributors often recommend those mutual funds which have a higher expense ratio, so that they stand to gain.
This malpractice by several distributors has resulted in strict rules from SEBI. SEBI has proposed that the commission paid to mutual fund agents should be carefully regulated according to some stringent provisions.
Another reason behind the churning could be the lure of quick money among retail investors. This was witnessed in many IPOs in the recent past where retail investors functioned primarily on hype and inflated prices.
Further, there is a “cultural issue” in India. Some suspect that the quick drop-out from specific mutual funds could be because of the nervousness of new investors who want to avoid making losses. It’s all about the mindset. As investors mature, and get ahead in the learning curve, they will learn that the thrill of investing lies in long-term investments.
However, the first point mentioned above, that mis-selling of mutual funds is one of the likely causes of churning, is quite alarming. Money Assist, a mutual fund agent, appeals to investors to choose the right distributor in their quest to grow their investment corpus.
Having been in the mutual fund industry for close to a decade, we are one of the most trusted and renowned names.
If you are interested in growing your wealth in a secure and stable manner, you can reach out to us and we will help you to manage and invest in the right investments.
