#1 Because most of the investors end up mixing emotions with investment
When the market increases, they get super excited. Eventually, they end up investing more and more money. When the market starts falling, they panic and start exiting. In this process, they end up making a loss.
#2 Because most of the investors don’t have the patience to invest in the long term
Equity mutual funds are volatile in the short term. It means they might show a negative return for a few days, weeks, months. However, they provide a very good return in the long term. But the investors expect their wealth to grow every single day. Patience is the key which is missing from most of the investors.
#3 Because most of the investors think that mutual fund is a “genie” which will fulfill all their wishes
This is the result of over expectations. You can’t get 10 crores with Rs 1000 investment. Everyone wants high returns but the returns would depend upon the investment amount. There is a huge gap between expectations and reality.
#4 Because very few investors understand how to build the right portfolio
Mutual fund selection is based on the financial goal and risk appetite. Random mutual funds don’t help.
#5 Because you can’t get the highest return with the lowest risk
Everyone wants high returns but nobody wants to take the risk. Mutual funds with the potential to provide high returns have a higher risk associated with them. It means they might fluctuate more frequently and result in higher negative return in the short term.
#6 Because most of the investors track their fund performance every single day
Your mutual fund will not provide “extra” return if you keep tracking it daily. It only results in anxiety. Stay calm and allow your fund to grow.
#7 Because most of the investors have no clue on how mutual funds work
Little knowledge is a dangerous thing. Just because someone told that mutual fund is a good investment doesn’t mean you jump into it. It is important to learn and understand how it works. If you don’t have any knowledge, better stay away from it.
“When you start driving a car, you need to learn when to put brakes and when to accelerate. You also need to follow the traffic rules. Otherwise, it will result in the accident. If you can’t do this, better do not drive the car.”
The same goes for mutual funds!
In the short term, the market is driven by sentiments. In the long term, the market is driven by fundamentals. Those who invest systematically for the long term would create wealth and those who panic would lose.
Source : https://www.quora.com/Why-is-it-not-recommended-to-invest-in-mutual-funds