How often have you come across people you know who have lost money in the stock market because they couldn’t guess where the market would go next moment or who made money because they knew where the market was headed next? Even the best market analysts can’t predict with absolute precision how the market will move the very next moment because financial markets are driven by sentiments and market sentiments are driven by market news.
An investor today has easy access to market news that may be factually correct or could be a rumour or mere speculation. While investment decisions based on factually correct news may yield positive results, investment decisions based on rumours or speculations can cause loss to investors.
According to Behavioural Finance Theory, investors are irrational by nature i.e their investment behaviour is not backed by thorough research and analysis but rather influenced by various cognitive and emotional biases including herd mentality. Hence, any incorrect market information can fuel panic amongst investors leading to huge erosion of investor wealth.
Then how can an investor hold himself steady when the market is flooded with all kinds of news ranging from verified ones to rumours? This is where Mutual Fund investments can come to the rescue of millions of small investors who lack the capability and resources to carry out extensive research and analysis. Investing in mutual funds helps circumvent all the above problems as professional fund managers take care of the investment decisions on your behalf. Also, mutual fund investments held over a long period of time help you tide over short-term fluctuations caused by market volatility that is many times fueled by market rumours.
Fund managers have a team of research analysts who carry out extensive research based on all public information to evaluate each security before taking a decision to buy, hold or sell it. You can always reach out to your SEBI registered financial advisor or mutual fund distributor for guidance in case you come across some market news regarding any security in the fund’s portfolio or about the fund that sounds worrisome.