Simplifying mutual funds to help fulfil your dreams
Investing in mutual funds can help you achieve your financial goals in a systematic yet easy manner. However, there are certain myths associated with investing in mutual funds that may deter you from investing in them. Let's clarify some of these myths.
You need a large sum to invest in mutual funds.
Fact: You need not have a lot of money to start investing in mutual funds. You can start with a sum as low as Rs 500 p.m. by investing through Systematic Investment Plans (SIPs).
Buying a top-rated mutual fund scheme ensures better returns.
Fact: Mutual fund ratings are not static as they are based on various parameters which also include fund performance. A fund that is rated highly today, may not necessarily maintain its rating within its category a year later. Investments in mutual funds need to be tracked regularly to evaluate its performance.
Investing in mutual funds is the same as investing in stock market.
Fact: Not all mutual funds invest only in stocks. Mutual funds, given their specific objective invest in a variety of asset classes ranging from stocks, fixed income and even overseas instruments. Thus, there is a fund for every type of investor, spanning a risk spectrum of low to high.
A fund with lower NAV is better.
Fact: A mutual fund's NAV represents the market value of its investments. Any capital appreciation will depend on the price movement of its underlying securities. Say, you invest Rs 10,000 each in fund A (whose NAV is Rs 20) and fund B (whose NAV is Rs 100), you will get 500 units of fund A and 100 units of fund B. Let's assume both schemes have invested their entire corpus in exactly same stocks in same proportions. If these stocks collectively appreciate by 10%, the NAV of the two schemes should also rise by 10%, to Rs 22 and Rs 110, respectively. In both cases, the value of your investment increases to Rs 11,000. Always remember that existing NAV of a fund does not determine its future returns.
You need to time mutual fund investments.
Fact: For your investments, time spent in the market is more critical than timing the market. Your mutual fund investments can be channelised through SIPs to help you average out your cost of investments irrespective of market movements.
An investor awareness initiative.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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