Lack of awareness about the benefits of mutual funds is hindering small and medium enterprises (SMEs) from looking at it as a good option for investments.
Addressing the SME-CEO Knowledge Forum, Bhareth L. Ghia, Country Head, SME and Distribution Channel for UTI Mutual Fund, said awareness of financial instruments such as mutual funds is still very low and this is the reason why SMEs have not invested in them.
“Low awareness on treasury management solutions, no time to follow-up on their investments and dynamic liquidity requirement are some of the reasons why SMEs look at other options,” said Ghia. Further, some of the myths associated with mutual funds have spooked SMEs to not invest in them. For example, myths such as investment may be at risk as they are exposed to capital market volatility, not as a prudent investment to keep large amounts of money in mutual funds, difficulty in operating mutual fund accounts, high service charges, not a high return on investment, and most importantly, inability to withdraw funds at a short notice, are some of the reasons cited by companies in this sector.
Demystifying this, Ghia pointed out that a mutual fund is the trust that pools the savings of a number of investors who share a common financial goal.
“Anybody with an investible surplus of as little as a few hundred rupees can invest in mutual funds and the money thus collected is then invested by the fund manager in different types of securities based on their financial goals,” he said. These could range from shares to debenture, from Government securities to money market instruments, depending on the scheme’s stated objective, he added.
However, Ghia made it clear that mutual funds give market returns and not assured returns, but said that in the long-term, market returns have the potential to perform better than other assured return products.
He also pointed out investments in mutual funds gave returns in the range of 6.3-11 per cent per annum, according to the CRISIL -Debt Fund Performance Index.