Why DIY Investing Isn’t Always the Best Option for Mutual Funds?

Thanks to the internet, expanding our skillset and learning new things has never been easier. Whether it's cooking or solving a math problem, a simple search can provide you with a plethora of do-it-yourself (DIY) tutorials and guides. However, when it comes to learning something like investing in mutual funds and SIPs, one shouldn’t just surf the internet for DIY plans. Unlike a fixed recipe, there is no "one-size-fits-all" approach to investing. Every investor is unique, with different financial needs, objectives, and risk profiles.

Moreover, DIY investors often make decisions based on past performance. There is no guarantee that mutual funds that have performed well in the past will continue to do so in the future. When these funds fail to perform, investors may exit and incur losses or achieve sub-optimal returns. Investors need tailored guidance to cater to their unique needs, risk profiles, and behavioral biases. A mutual fund distributor can guide you in making decisions based on your specific financial needs and risk profile while providing support during market volatility.

Here are the reasons why mutual fund investors should choose the distributor route rather than the DIY route for fulfilling financial needs and building wealth:

Knowledge & Understanding

Investing in mutual fund SIPs requires a proper understanding of various fund categories, the risk and return trade-off of these categories, the fund house caliber, the quality of schemes, and their performance history. There are about 43 fund houses in India, with hundreds of schemes in different categories. Analyzing the performance, risk factors, investment strategy, and scheme suitability can be a time-consuming and complex process for a beginner. A mutual fund distributor with the requisite experience, skills, and knowledge can help better evaluate these factors and provide tailored guidance.

Asset Allocation and Risk Profile

When making an investment decision, it is crucial that the investment objectives and risk profile are analyzed to determine the ideal asset allocation. Once the investor’s risk appetite and capacity are determined, the decision of what asset class to choose is made according to the investment horizon and objectives. DIY investors are likely to miss this important aspect of investment or portfolio management in the absence of any guidance. Mutual fund distributors can guide investors in this process and help determine the optimal asset allocation and diversification within the mutual fund space.

Need-Based Investing

Many DIY investors start SIPs without any set targets simply because it's a popular approach. This is not ideal. SIPs should be done to fulfill long-term life needs like preparing for retirement, a child’s college fund, or making big purchases like a house or car. To fulfill these needs, investors must accurately quantify these needs and determine the right investment amount in mutual fund SIPs aligned with their needs. A mutual fund distributor can assist investors in identifying the required SIP amount and recommending suitable schemes.

Behavioral Bias

Investors are driven by emotions such as fear, greed, anxiety, and hope, especially during extreme market movements. During volatile market phases, a mutual fund distributor can help guide investors and provide them with the confidence and guidance needed to avoid being influenced by the markets and to do the right thing. A mutual fund distributor can help investors stay calm, stable, and committed to their long-term investment plans. A new DIY investor may find it hard to stay unbiased and ahead of the markets. The emotional support and behavioral insights a mutual fund distributor can provide are invaluable.

Monitoring and Rebalancing

While it may seem like the investment process ends after the transaction is executed, investments need constant monitoring and reviews to ensure they are on track to fulfill financial needs. Mutual fund distributors can provide periodic insights and reports on mutual fund investments, evaluating progress towards objectives. With regular monitoring, mutual fund distributors can guide investors if rebalancing is required. They can also be a go-to person for any grievances, servicing, and compliance-related requirements.

Conclusion

A mutual fund distributor can help guide investors to fine-tune their investment approach and decisions with respect to mutual funds. Emotional support and shaping investment behavior can also greatly benefit investors. Avoiding mistakes and encouraging investors to stay committed to their investment objectives further ensures confidence in achieving them. While it is possible to learn and manage mutual fund investments in DIY mode, this is ideally recommended for mature, knowledgeable, and experienced investors. This learning should not come at the cost of time and money.