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How to deal with rumors while investing?

A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.

Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.

The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.

How to deal with rumors while investing?

How many times have you come across people you know who lost money in the stock market because they couldn’t guess where the market would go the next moment or who made money because they knew where the market was headed? Even the best market analysts cannot predict with absolute accuracy how the market will move in the 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 rumor or mere speculation. While investment decisions based on correct facts can produce positive results, investment decisions based on rumors or speculation can cause losses to investors.

According to behavioral finance theory, investors are irrational by nature, that is, their investment behavior is not supported by extensive research and analysis, but rather influenced by various cognitive and emotional biases, including the herd mentality. So, any misinformation about the market can fuel panic among investors, leading to a huge erosion of investor wealth.

So how can an investor stand firm when the market is flooded with all kinds of news ranging from verified news to rumors? This is where mutual fund investments can come to the rescue of millions of small investors who lack the capacity and resources to carry out in-depth research and analysis. Investing in mutual funds helps to circumvent all the above problems as professional fund managers take care of investment decisions on your behalf. In addition, investments in mutual funds held for a long period of time help you overcome short-term fluctuations caused by market volatility that is many times fueled by market rumors.

Fund managers have a team of research analysts who conduct extensive research based on all public information to evaluate each security before making the decision to buy, hold or sell it. You can always contact 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 on the fund that seems worrisome.

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