Myths about investing in mutual funds

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

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.


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.

read more


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.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Value Investing - What is Value Investing & its Fundamentals

    Value investing is the dark horse of stock markets. And this dark horse has created huge wealth for none other than Warren Buffet. Read on to know what value investing is, and what are the critical factors in this strategy. All that glitters is not gold and all that is gold does not always glitter. This holds true for investment decisions as well and forms the core principle of value investing. What is Value Investing? The value investment strategy was popularised by Benjamin Graham along with David Dodd after successfully surviving the period of the great depression. It involves proactively identifying stocks which are trading at a significantly lower value than their intrinsic value. Intrinsic Value refers to the true value of a stock. The two factors behind value investing are market price and value. Price is the amount you pay, and the value is what you get in return. Value investing believes that the stock market does not always remain in an efficient or balanced state. It sometimes overreacts to events such as political announcements, organisational restructuring, economic conditions and results in stock price fluctuations which do not correspond to the company’s actual worth or long-term fundamentals. Hence, there is a good probability that there are undervalued or overvalued stocks in the market. Value Investing and Behavioral Finance Value Investing and Behavioral Finance are two sides of the same coin. Value investing aims to exploit irrational or impulsive behaviour of investors. Emotions heavily influence investment-related decisions. Greed, fear, peer-pressure lead to poor investment decisions. This creates a huge potential for dispassionate or objective investors. Value investors do not get carried away by market sentiments or herd mentality, instead, they look at the real value of a stock in the long run. They also do not fall into a “growth trap” without actually understanding the history or behaviour of stocks. Fundamentals of Value Investing1. Find the intrinsic value Investors who follow value investing strategy are more interested in a stock’s intrinsic value and not just the current market price. There are multiple ways and valuation methods that are used to identify the intrinsic or true value of a stock. Such as discounted cash flow analysis, dividend discount model, Earning per Share valuation, etc. There is also a formula coined by Benjamin Graham to arrive at the true value of a stock. It is:  Intrinsic Value = Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years).  This formula has been now tweaked to reflect the current market conditions correctly. It is now:  Intrinsic Value = [Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years) multiplied by 4.4] divided by current corporate bond (AAA) yield.  4.4 in the above formula referred to the minimum rate of return in the USA in the year 1962. For the purpose of valuation of Indian stocks, 4.4 should be replaced by the corporate bond yield in the same year in India. When the stock’s market value goes below the calculated intrinsic value, investors purchase those stocks. Then they sit back and relax till the time the market corrects itself and the stock price reaches its actual value.  2. Margin of Safety Margin of Safety enables value investors to manage risks and avoid losses. It is also the key element which distinguishes value investing from mere speculation. It refers to the difference between the stock’s current market price and its intrinsic value. Higher the gap, greater is the safety margin. By investing in a stock with an adequate security margin, investors know that any negative event or volatility will not adversely impact the value of the investment. 3. Don’t follow the crowd Value investing is not for those who like to follow the herd. Value investors focus on stocks which are overlooked or avoided by others because of their low valuations but are inherently solid stocks.   Are there risks in Value Investing? Yes. Just like all the other things in our life, there are risks involved in Value Investing as well. One of the biggest risks is falling into Value Traps. All cheap stocks do not translate into good investment decisions. Value traps are stocks which seem to cheap due to low PE multiple or cash flows, but never go up in value. It is important to do full due- diligence before investing. This includes not just financial metrics, but also qualitative aspects such as quality of management, stability, competition, etc. Final Words Value investing is a proven strategy for wealth appreciation in the long run. But it can be an intimidating way of investing without the right support. A partner like IndiaNivesh can make the process smooth and more fruitful for investors. IndiaNivesh is a reputable financial service provider which offers a wide range of services related to Broking, Institutional equities, strategic investments, wealth management, investment banking and corporate finance. With their in-depth understanding of the Indian markets, the organisational experience of three centuries and cutting-edge technological tools, they help investors make well-informed and profitable decisions.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Online Trading – 5 Essential Tips for Trading Online in 2020

    Technological advancements and digitalisation have changed the online arena for every business, and the online share trading is no exception to the trend. Over the last few years, online trading has become very popular, especially amongst the millennials and generation Y. Prevalence of smartphones, lower costs, opportunity to earn extra income, low entry barriers, ease of access, etc has had a profound impact on online trading. Even though online stock trading today is huge, and many people are motivated to explore online trading for a rewarding career, by no figment of imagination it should be assumed that it is easy, and they can become financially self-sufficient in a short period. Here are 5 essential online trading tips to help improve your chances of success in your endeavours as a trader-1. Do the research and gain relevant information about the markets The economic conditions are constantly changing and it has a significant impact on the stock markets. To be successful in online share trading you have to do your research, collect relevant information and be updated about matters relating to markets. With information being available at the click of a button, it is easy to get access to information from various sources. Keeping your eyes and ears open about the official announcements being made, reading up market-related articles and financial publications can help you ace the game of online stock trading and avoid making whimsical trade calls.  2. Get acquainted with the trading terminologies and tools Getting yourself familiar with various terminologies and trading tools beforehand is extremely important so that you do not falter when you start trading. Clearing your basics about the important workings, different types of trades, important terms are critical. If you are not clear about the basics, then you may end up placing a wrong order. Once you are trading online, you are investing real capital and you cannot undo the trade. So, it is essential that you must be familiar with the features and the functions of the trading platform which you are going to use. Practice trading on dummy versions to get a hang of the trading interface before you can start with online trading. Once you have enough practice you will not be flustered and confused at the time of real trading. 3. Start with small capital and practice risk management There are infinite opportunities in the trading world and you do not want one experience to be the deciding factor for you. As online trading is risky, you should always make a small start in the beginning and invest little capital. Even the most successful traders do not put their entire investible surplus for trading but use only the capital which they have to spare after they have put aside for their long-term goals such as retirement. So, invest only the capital which you can afford to lose and which will not affect your financial planning. Another important thing to keep in mind at the time of executing trades is that the risk associated with trading is high and hence you should take adequate measures to minimise risk. Setting a stop-loss to your order will automatically stop a trade if the losses hit a particular mark and help minimise your losses. 4. Be patient and disciplined Online trading is a great way to make an income and many have successfully made a career out of it. If the success stories of other traders have motivated you to take the plunge, then, let’s be honest, online trading is risky and not for the light-hearted. Moreover, it is not something you can master overnight or become rich overnight on a single trade. To be successful, you need to have the right mindset and should be disciplined in your approach. Make a trade plan and stick to it. Trading out of impulse or greed will not help you become successful but following a plan and trading when you see opportunities can help you achieve the desired results. 5. Select the right broker and trading platform Last but not least, choosing the right broker and opening the best trading account online is important, and hence you should be careful about your selection. Choose a trading platform that best meets your needs and has a user-friendly interface. You should be comfortable using their software. Your success rate would be greatly affected by the timely execution of your orders. Other aspects to consider are a level of customer service and satisfaction, market reputation and competitive fee structure.   Conclusion With the above essential online trading tips, you can give your income a boost. We at IndiaNivesh have one of the best online trading platforms at the most competitive price and also offer expert advisory and research to meet your investment needs.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Tips on Investing Money in Mutual Funds

    Mutual Funds are the cynosure of the financial world. And rightly so! These investment havens pool in money from multiple investors and then invest the corpus across asset categories in line with the scheme’s objective. They are a great option for retail investors who would otherwise find it difficult to get exposure to such varied investment opportunities. What makes Mutual Funds a good investment tool? ·         Professional Management The USP of Mutual Funds is that they are managed by a team of experts. They are equipped with the necessary resources and information to continuously monitor the markets, analyze market trends and conduct in-depth research. As a result, the fund managers can devise the best investment strategy for the investors and guide them regarding the best mutual funds to invest in. ·         Financial Discipline One of the common problems faced by investors is that they lack the rigour or discipline to stick to their financial resolutions. Mutual Funds take care of this issue easily. Systematic Investment Plans ensure that investors continue to invest regularly. ·         Flexibility Mutual Funds offer a great deal of flexibility to investors. You can choose the frequency of contribution as well as opt to increase or reduce the investment amount as per cash flows. ·         Affordable Systematic Investment Plan (SIP) facility makes Mutual Funds affordable to everyone. One can start mutual fund investments with just Rs. 500. That is basically the cost of one pizza these days! They are perfect for novice investors who are overwhelmed or scared of equities but still want some exposure. ·         Tax savings ELSS are tax-saving Mutual Funds. Investment in these mutual funds qualifies for tax deductions (till Rs. 1.5 Lakhs) as per Section 80C. Owing to their potential of higher returns and shorter lock-in period, as compared to other tax-saving alternatives, ELSS have become a preferred choice for many investors.   Mutual Fund investment tips Now that you know what makes Mutual Funds a great investment tool, here are some mutual fund investment tips to help you make the most out of your hard-earned money. ·         Set a goal It is rightly said that “Dreams do not come true. Goals do”. The same rationale applies to investments too. Investments bring the best results when they have a purpose. So, the first step in mutual fund investments should be setting an investment goal. You should consider factors like budget, investment horizon, financial ambitions and most importantly your risk appetite.  ·         Select the right fund type When it comes to mutual fund investments, one size does not fit all. Just because your friend is investing in a fund does not mean it will benefit you as well.  Mutual Funds invest across a range of asset classes. Hence deciding which mutual fund to invest in can be slightly tricky. It is important to choose a scheme that is in sync with your needs and risk profile. For instance, if you are an experienced investor and can afford to take risks, you can easily go for equity funds. However, if you are a novice then most mutual fund tips for beginners will suggest going for debt or balanced funds. It is important to understand the risk-return relationship inherent in each asset category before making a decision. Rule of thumb being – higher the risk, higher the return! The asset allocation should be in sync with your risk appetite. Also, ask yourselves why you are investing in mutual funds. Is it to save taxes? Then ELSS Funds are your best bet. If you have a short investment horizon and want a fund type with high liquidity, then you can go with Liquid Funds. ·         AMC Credibility Check The right fund house can not only help you decide which mutual fund to invest in but optimize the potential of your overall portfolio. It is important to look at factors such as the credentials of the fund managers, expense ratio, components of the portfolio and AUM (Assets Under Management) of the Fund House. ·         Diversification is the key You should not put all your eggs in the same basket. Diversification across asset categories and investment styles is important. It helps to lower the risk quotient as it gets spread over different investments. Even if one fund underperforms, the other can compensate for it. The value of the entire portfolio is not at risk. ·         SIPs vs Lump-sum One of the best mutual fund tips for beginners is choose the SIP way. Especially if you are venturing into equity or equity oriented mutual funds. A SIP will allow you to spread out your investments over a longer duration of time. You will invest at different points in the market cycle and hence even out the associated risk. Also, the power of rupee-cost averaging in SIPs helps to generate higher returns in the long-term. ·         KYC KYC has become a necessity these days. Government of India has mandated KYC for most of the financial transactions including mutual fund investments. So, ensure that you have documents such as PAN Card, valid address proof, etc. before you venture into mutual fund investments. ·         Have a long-term view Mutual Funds are like a committed relationship and not a one-night stand. You need to remain invested for a longer duration in order to get the best rewards. Especially in the case of equity funds. This is because markets tend to be volatile in the short run but tend to move up in the long-term. The best combination is to invest in a mix of debt and equity to get best of both the worlds. Debt Funds would help to lower the overall risk of the portfolio and could help meet emergency fund requirements in the short run. While your equity funds work on wealth appreciation in the long run. ·         Ask the Expert Just like KBC, Mutual Funds also come with a helpline – Ask the Expert! There are so many options available in Mutual Funds. It can become rather overwhelming for a new investor to select the right mutual fund to invest in. A professional expert will not only help to select the right funds and schemes but will also constantly monitor the market on your behalf. One such expert is IndiaNivesh. They offer a wide variety of financial solutions related to broking and distribution, strategic investments, institutional equities, corporate advisory, investment banking and private wealth management. The team at IndiaNivesh has a combined experience of more than 300 years. With their cutting-edge technological and research capabilities, competent team and “client-first” approach, you can be rest assured that you are in safe hands.   Final Words Now that the mystery is solved about how you can select the best mutual funds to invest in, what are you waiting for? Especially when you know that you have a guide like IndiaNivesh available at the click of a button.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more