In the occasion of Dussehra let us understand the ten truths
and myths about mutual funds.
1.
It is too Complicated
Most of the people feel that mutual funds
are complicated instruments and not meant for me. The truth is that mutual
funds simply invest the money on debt, equity and gold or mix of these assets
and there is nothing so much complicated on this.
2. We need lot of money to invest in Mutual Funds
Many people feel that mutual funds are for
riches and we need lot of money to invest in mutual funds. However the truth is
that we can invest in monthly SIP for as low as Rs. 500 only. Mutual funds are
for everyone how big are small the amount is, It can always be invested in
mutual funds.
3.
We need a Demat Account to invest in
Mutual Funds
There is
misconception that Demat account is compulsory for mutual funds. The truth is
that we can invest in mutual funds without any Demat account, although we can
take the mutual fund units in Demat account also however it is not compulsory.
Even without Demat account the investment and redemption is very east through
online mode.
4.
Mutual Funds are for long term investment
purpose only
We can invest in
mutual funds for a week also as well as for years. There are various different
type of schemes based on the investment horizon and risk appetite wherein we
can invest for short medium or long term based on our specific requirements.
5.
High rating Schemes earn better
There are
various portals/agencies which gives ratings to mutual fund schemes, We
generally are under impression that higher rated scheme will be doing better as
compared to lower rated schemes. However the truth is that rating and
performance keeps on changing and there is no scheme which can always be at top
rating or bottom rating. Therefore we may not be totally dependable on the
ratings of the schemes.
6.
We should invest in Equity mutual funds
only
Many investors
feel and mutual fund means equities and we should invest only in equity
schemes. However, even today more than 50% of the total mutual fund corpus is
in debt /debt related funds. Mutual funds are best for diversification purpose.
We should invest in debt/balanced and equity schemes based on our investment
horizon and risk appetite.
7.
Investment in Mutual Funds is cumbersome
There is a
common myth that we need lot of documentation to invest in mutual funds, KYC is
required for every time we want to invest in mutual funds. Investment in mutual
fund is actually very easy, we need to do basic formalities and KYC only one
time and after that we can invest in any mutual funds. Nowadays there are various
online platforms available through that we can invest in mutual funds from
anywhere and anytime.
8.
Lower the NAV better to invest in
There is a general
miss-conception that if a scheme’s NAV is lower than it is better to invest in.
However the fact is that the price of NAV actually does not makes a difference.
For example if a schemes NAV is Rs. 10 and we have invested Rs. 10,000 then we
will get 1000 units. Another scheme NAV is Rs. 100 and if investment amount of
Rs. 10,000 then we will get only 100 units. Now if the market goes up by 10% it
means first scheme’s NAV will become Rs. 11 and our investment value will
become Rs.11,000 (11X1000) and for second scheme NAV will become Rs. 110 still
the total investment value will remain Rs. 11,000. So it is more important to study the
performance and portfolio of the schemes rather than the NAV of the schemes.
9.
Stop SIP when Market falls
Many people get
scared when the market falls and stop there SIPs during that time. That time is
to continue your investments as you will get more units at cheaper price reducing
the average cost of investments. This will help to improve overall return when
the market rises. It is always better to continue with your investments and not
get over-influenced by the market movements.
10.
No need for an Expert
Every products
has its unique features hence suitable for few people and not necessarily suit
for other person. Experts are there to help a person to find out right product
mix based on his own specific requirements/financial goals /risk appetite and family
needs. It is always better to seek expert advice so as to select right schemes
which is most suitable to achieve your own specific financial goals.
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