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Why Don't People Invest in Mutual Funds in India?

Anmol Gupta

Well, not everyone believes that “Mutual Funds Sahi Hai”, and there are legitimate reasons for that.


According to Association of Mutual Funds in India, the latest data shows that only 1.5% of Indians invest in mutual funds.Based on the latest statistics, out of the total 134 crore people in India, the mutual fund industry has 2 crore unique PAN card registrations. It means that out of 29 crore PAN holders in India, only 2 Crore holders have a mutual fund investment to their favour. (Source:, here comes the question of why Indians are hesitant about investing in Mutual funds? Let us understand the reasons for this here:


Not aware of how it works


Many Indians are not aware of how mutual funds work. Of course, they see ads on televisions that say that “Mutual fund investments are subject to market risk, please read offer-related documents carefully before investing”. With this sentence, they are hesitant whether they will lose their money. Being a traditional nation, most Indians feel that investing in banks will be the safe option for them. When they get complete knowledge on how mutual funds work, they will truly come forward to invest.


Bad past experience because of agents recommending wrong schemes and unrealistic returns


Mutual Fund industry has existed for more than 25 years in India, but its penetration is very low. The industry has been prone to mis-selling of schemes which has resulted in lack of trust amongst common people. Mis-selling is when a Mutual Fund distributor sells schemes which makes him/her more commissions instead of selling the scheme which is suitable for client’s goals and risk taking capacity. Since mutual fund distributors are driven by commissions, this inherent conflict of interest is often not aligned with client’s interest. Many people lost lose their hard-earned money with an inappropriate guidance and mis-selling, and now they are hesitant about again investing in mutual funds just like a cat fearing hot milk.


Thousands of Choice but Lack of Know how as to Which Scheme is good


Supposedly, on the brighter side, there are thousands of mutual fund schemes available in the market. But, the choice of availability makes it overwhelming for investors. The reason is people they do not have a complete knowledge on which will be the suitable choice for them based on their age, financial stand, risk-bearing ability and other factors. When they have the right guidance and knowledge, they are sure to get the excellent benefits from their investment.


Lack of Financial Advisers


The right guidance will always keep people in making the right monetary choice. With the lack of expert knowledge in the field of mutual investment, there is a lack of financial advisers. On one side there are close to 1 Lakh mutual fund distributors whose business is driven by conflict of interest, there are just about 900 SEBI Registered Investment Advisers which are fiduciary (Disclaimer: 7Prosper being one of them). In turn,Indians do not get the right guidance to make a right choice of the plan to invest their money in mutual funds.


Mis-selling of products

As mentioned earlier when people go for the regular mutual fund plan as against a direct plan due to lack of knowledge,they are forced to spend a huge sum of money as commission. At the end of the nvestment period, they find that they have not got the returns they expected.So, with the mis-selling of products by inappropriate agents, Indians are hesitant about investing in mutual funds. The agents sell products that make better commission to them. By doing so, they set false expectations for the investors just with a view to selling their products.


In short, the lack of knowledge pulls back most Indians from investing in mutual funds. However, the number of investors is increasing.

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About the Author
Anmol Gupta
Anmol is CEO at 7Prosper. He is SEBI Registered Investment Adviser, with expertise in Finance and Technology domains. Anmol is committed to help people achieve their financial freedom.

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