We all save and invest our money in some form or the other. Some prefer savings account, some invest in mutual funds while others invest in the stock market. However, have you thought about what happens with the money you invest?
The claim of your money is in safe hands is in question again. You must have heard of many cases where the authorities we trust comes into question. For instance, Harshad Mehta Case, Nirav Modi Case, Onkar Singh Pahwa Case, and many more.
Once again there happened a Scam. A case has been filed against a Hyderabad based company by the Central Bureau of Investigation (CBI). And the amount involved is bigger than Nirav Modi Case. It will have a bigger impact on your mutual funds or equity shares investments.
What exactly happened?
CBI books a company Transstroy (India) Ltd, for a Loan Fraud - cheating a consortium of banks of Rs 7,926 crore.
Transstroy deals in the construction of bridges, highways, irrigation projects, metro related work. It also operates in the business of oil and gas. As per an order by National Company Law Tribunal (NCLT), the company is currently under liquidation process from September 2019.
Transstroy had benefited credit facilities on various financial grounds from a consortium formed with different banks drove by Canara Bank.
The organization had associated with distortion of books of records, tampering of balance sheets, fudging of stock statements, round stumbling of assets, and so on. Also, they abused the bank's assets and redirected the credit amount authorized by the banks, and caused a loss of Rs 7926.01 crore (approx) to Canara Bank and other part banks.
Do you know how it will affect mutual funds or equity shares investors? Let's have a look.
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Consequences for mutual funds or equity shares investors?
Do you wonder how will this scam affect your investment? Let’s look at the after-effects.
When you deposit some money in your bank account, the banks keep it apart, they are free to use the remaining for lending, and other facilities offered. When any default takes place, it directly reduces the bank's profit, which results in the fall of its share price. As a result, the value of investors’ money depreciates due to the defaults made by such scammers.
You must be wondering if that is the case, your money will never be safe. Let's take an example to elaborate is.
There are 2 investors named X and Y. X invests in Mutual funds with Canara Bank while Y prefers to invest in Canara Bank Stocks. What do you think whose investments will directly be impacted by this case?
Without a doubt, Y will lose a lot of money when the share price of Canara bank will fall due to this scam. On the other hand, investment in X will not be affected much.
This is because mutual funds invest in multiple companies from different sectors. The downfall in the price of one company does not have much impact because it gets compensated by the rise in the share prices of the other.
Why should you choose Mutual Funds over equity investing?
Ask any investment professional, and they'll probably reveal that one of the most important approaches to reduce your risk is through diversification. The basic point here is that you shouldn't put all your eggs in one basket. In simple words, it means don’t invest in one industry or one sort of investment vehicle.
That is the place where mutual funds come into the picture. A great way to diversify your investments is to invest in Mutual Funds. In contrast to stocks, investors can invest a small sum of money in one or more types of assets and access a diversified pool of investment choices.
In the event where you search for something very similar in the stock market, you'd need to contribute considerably more money to get similar outcomes.
Click here to know about different types of mutual funds and their benefits!
Conclusion
We hope after reading the above article you must have some clarity on mutual funds versus stock, and which is a superior investment choice. In the event that you need to profit without a large number of the disadvantages of stock investing, the most ideal approach to procure those profits is by investing through mutual funds.
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