Mutual funds increase the problem of choice for the ordinary investor.
The purpose of mutual funds is to make it easy for people to invest in Equity. The money is managed by experts who understand how to evaluate the financial performance of companies. All the investor has to do is to choose a mutual fund. But could it be that mutual funds made the problem worse for the ordinary investor? Let’s take a look.
95% of the money collected by more than 1100 equity or equity oriented mutual fund schemes in India is invested in less than 400 stocks! So would you be better off researching those stocks and picking than trying to select a mutual fund? One can argue that understanding financials of companies is difficult, and beyond the capability of most investors. But on the other hand, mutual funds have cultivated their own financial terms and ratios, which leave an investor confused.
"Which fund do I invest in?" is a question we’re asked constantly by confused investors. It’s an important question because your choice of mutual fund could mean the difference between driving a car or a bicycle; or whether your kids can go to the college of their choice.
We strongly believe that the explosion of mutual fund schemes is partly responsible for the low mutual fund penetration in the country. There is research to prove that faced with more than 7 (just 7 and not 400) options most ordinary humans do not take a decision at all!
Scripbox is our answer to the problem of too much choice.