Myths about investing in mutual funds
There’s a popular adage that goes like this: A little knowledge is a dangerous thing. That’s true because you are bound to trip at some point if you don’t have the right information on you. It’s no different in the world of investing either. And like with every aspect in life, misconceptions do weave itself into a popular narrative. This article will act as a Good Samaritan and help bust myths on mutual funds investment that have inevitably become a part of mutual funds’ success story.
Myth 1. Mutual fund investments require lot of money
Reality: The reality is that there are a variety of mutual fund investment types. Most of them can be started with as low as Rs. 500 through the systematic investment plan (SIP) route. SIPs allow you to invest a certain amount of money on a monthly basis in most mutual fund investment options. This way, you don’t have to invest a lump sum amount in one go.
Myth 2. Mutual funds with lower NAV are always better
Reality: A mutual fund’s return-generating capacity depends on its underlying assets, past performance, fund management quality and future prospects. Contrary to popular mutual fund investment myths, the size of the net asset value (NAV) has nothing to do with its future performance.
Myth 3. You need to be an expert to invest in mutual funds
Reality: This is one of the myths about investing in mutual funds; however, it is partially true. You do have to research which mutual fund suits you the best. But once you have selected your kindred fund, leave the rest to the fund manager. You don’t have to be a savant, a consummate number-cruncher to strike gold. That’s because the fund manager, along with a team of analysts, put in their skill and expertise to manage your money. All said and done, it is still advisable to keep monitoring your investment’s performance from time to time.
Myth 4. Investing in high-rated funds can deliver better returns
Reality: A fund that has done well in the past may not necessary do well in future. You need to remember that you are playing the market, and that markets are dynamic and ever-changing. Therefore, performances of funds are fluid too. The list of high-rated funds keep evolving. It is very difficult for a fund to keep delivering high returns year on year. So, even though you should look at the fund’s past performance to gauge its strength, it is not gospel either. It cannot guarantee you high returns in future.
Myth 5. Investing in debt funds is risk-free
Reality: Debt funds invest in fixed income securities like bonds, government securities and other debt instruments. Though risk is on the lower side, performance of such funds can vary due changing interest rates and credit risk.
Myth 6. Mutual funds are for long-term investors only
Reality: Many investors believe there is no scope for short-term income in mutual fund investments. While it’s true that for higher returns you need to stay invested for longer, there is an opportunity for short-term investors too. That’s because there are many types of mutual funds. For instance, there are liquid funds, ultra-short-term funds and short-term funds that can offer decent returns over a shorter time frame.
To sum up, it is important to weed out the fake news associated with mutual funds. Even though we are currently living in a post-truth era, the world of finance is still very well ensconced in the world of facts and numbers. Bending them to your advantage can backfire in the long run. Instead, let myths play truant in the minds of those living in an altered reality.
Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
PREVIOUS STORY
Why start investing in mutual funds
Mutual funds have been shining brighter by the year in the country. But you may wonder why invest in mutual funds? The answer is simple: they are considered to be the ideal investment option for people not well-versed with the world of finance. You don’t need deep pockets to invest in them either. In this article, we look why invest in mutual funds makes sense. To start investing in mutual funds you need to know the reasons in detail as to why mutual funds can be an ideal option, especially if finance is not your forte.✓ Convenient It’s easy to get started with mutual funds. There are many fund houses that offer online facility to invest. Unlike demat accounts for stocks, there is not much paperwork involved in mutual fund investments. Systematic investment plan (SIP) by mutual funds is a convenient investing option for beginners. In systematic investment plan, money will be directly debited from your account on a monthly basis towards fund investment. It’s that simple. Along with offering convenience, it also inculcates a habit of investing. ✓ Affordable There are many investors who step away from stock markets because they lack capital. However, mutual funds are affordable. You can start with as little as Rs.500 a month. The best part is that it gives you an opportunity to invest in a wide variety of stocks at a minimum account. Unlike direct equities, mutual funds offer you a maximum exposure at a minimal cost. ✓ Diversification Mutual funds can help diversify your investment across various asset classes like equity and debts. Unlike individual stocks which are risky, equity mutual funds diversify the risk by investing in stocks of various companies across various sectors. For example, a balanced fund invests your money in both equity and debt instruments. This means that even if your equity investment isn’t doing too well, you can rely on your debt investment to get a return on investment. Therefore, diversification can help reduce risk along with optimizing returns. ✓ Liquidity Mutual funds are highly liquid, meaning they can be bought or sold easily. Except tax saving schemes like ELSS (Equity Linked Savings Scheme), mutual funds don’t have a lock-in period. Further, mutual funds also offer liquidity by providing facilities like systematic withdrawal plans (SWPs) and systematic transfer plans (STPs). While STPs afford you the flexibility to move from existing fund to better performing fund, SWPs allow you to withdraw a fixed amount from your invested fund at fixed intervals. ✓ Professional management Mutual funds are managed by professional managers and experts who are in tune with the world of finance. Unlike with direct stocks, which needs you to do a lot of research, mutual funds reduce your burden by leaving this job in the hands of fund managers. Stock picking, tracking their performance and rebalancing if needed are done by fund managers. ✓ Competitive returns Above all, mutual funds can offer ‘higher returns’ when compared to many other investment options. After all, everyone’s objective is to maximize their income. For example, debt funds have consistently delivered better returns than traditional bank deposits. ✓ Transparency Mutual funds provide operational transparency. Net asset value of funds are declared and published on a daily basis. Mutual fund houses issue monthly fund factsheets that provide you details of portfolio holdings along with its performance. ✓ Regulated industry The mutual fund industry is regulated by the Securities and Exchange Board of India (SEBI), a non-statutory body that oversees securities market in India. As mutual fund houses operates under well-regulated structure, it focuses on protecting the interest of investors.To sum up, it now makes sense to know why start investing in mutual funds. Armed with a variety of options like growth funds, income funds, sector funds and ELSS funds etc., there is a fund for every need and investment objective. You investment decision will have a significant impact on the growth of your hard earned money. Invest smartly!What’s next?Now that we know how to start investing in mutual funds online in India and the reasons, it’s important to be aware of certain misconceptions that shroud mutual funds. That’s because clarity can help you take rational decisions. Speak to a financial expert to know where to start investing in mutual funds that aligns with your goals and risk appetite. Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
NEXT STORY
Why Alternative Investments?
A portfolio with a right mix of stocks and bonds may not be enough to achieve your long-term goals. As an intelligent investor, it’s important to know why alternative investments can offer new opportunities. That’s because exploring investment options beyond the primary assets can spice up the returns column and diversify your investments further. So, here are a few reasons why you can opt to invest a part of your money in alternative investments.✓ Lowers volatility: Traditional assets like bonds and stocks show strong correlation with economic trends that answers why alternative investments make sense. Market risk for such traditional investments cannot be eliminated completely even after diversification across various sectors, avenues and geographies. In that regard, alternative investments depend less on big market trends due to its illiquid nature. Hence, knowing why invest in alternative investments can reduce the effect of market volatility. Let’s consider why use alternative investments such as private equity to understand this better. Since you are investing in companies that are not listed and traded publicly, your investment is not directly affected by stock market volatility. ✓ Higher return potential: The goal of alternative investments is to generate higher returns. Unlike traditional investments, there is no competition against a benchmark. Furthermore, since these investments involve moderate-to-high risk, they have a potential to deliver high returns. This is why it is a good idea to know why alternative investments in market can be a good choice in one’s portfolio. For example, venture capital funds invest in start-ups having high potential for growth. If the start-up starts growing, you can receive massive returns. Similarly, hedge funds can deliver higher returns with reduced risk by trading various strategies across different asset classes – commodities, currencies, equities, debts and derivatives (futures and options, forwards, swaps etc). ✓ Widens Portfolio Diversification: There is a wide range of products in alternative investment space. Investing in them can diversify your investments further. After all, a well-diversified portfolio can deliver better returns to achieve long-term goals. Hence, it makes good reason to know why use alternative investments in stocks as part of your portfolio. ✓ Tax benefits: Since most of the alternative investments are for the long-term, they can provide you certain tax benefits. Private equity and venture capital funds can help you avoid long-term capital gain tax as they invest in unlisted companies. However, it would be erroneous to suggest these investments provide 100% tax breaks. All these options do have certain tax obligations. To sum upAlternative investments can diversify your portfolio and provide you refuge from the volatility of stocks. So, if you have a sizeable kitty to invest and the patience to reap reward in the long run, putting it in an alternative investment can be an ideal choice. The world of alternative investments could also include more confined and niche sectors such as collectibles, fine art and other rarities. These non-conventional investments can play an exceptionally crucial role when conventional investments undergo substantial unpredictability. You may want to consider such options as a potent diversifier along with traditional investments. To know how to best understand alternate investments and make the right decision call, you may want to look into the services of a financial advisor. Investments experts employ progressive and established strategies that can help you to capture opportunities in the various sectors of alternative investments.Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Are you Investment ready?
*All fields are mandatory