SmarTomorrows Myth busters

1Myth

One needs a large sum to invest in Mutual Funds.

Fact

One does not necessarily need to invest a huge amount in Mutual Funds. One can start to invest in mutual funds with an amount as low as Rs. 500/-.

2Myth

Mutual Funds are only for those who like to invest in stock market

Fact

Investing in mutual funds is not confined to the stock market alone. There are mutual fund schemes which also invest in Fixed income space. Such schemes invest in money market & debt market instruments. MFs are investments which are managed professionally by fund managers and the analysts who are responsible for investing and managing the portfolio on one's behlaf.

3Myth

Mutual Funds with lower NAV (Net Asset Value) are best to invest

Fact

It is irrelevant how high or low the NAV of a fund is. There are two funds where one invests in, one has a higher NAV, so the units bought will be less as compared to the other one where units bought will be more. Under both circumstances, the value of investments (number of units * NAV), would be identical. Thus it is the scripts in a portfolio that determine return from a fund the value of the NAV being immaterial. What matters is the percentage return on invested funds. One needs to consider the performance record, fund management team and the volatility of the fund that determine the portfolio return and not if the NAV is High or Low.

4Myth

NFOs (new fund offers) are better than existing schemes

Fact

NFO's can be bought only during the offer period, while an investor can purchase units of an open-end fund anytime whenever the investor desires. One can very well choose an existing fund with a consistent track record for a New Fund Offer

5Myth

Buy a fund once it announces dividend.

Fact

A fund is selected on the basis of the NAV how Up or down has the NAV moved. Dividends are paid out of accumulated profit. So, instead of looking at for “dividend” , it is worthwhile to consider other factors, such as the performance track record, fund management and he volatility of the fund that determine the portfolio return.

6Myth

Redeem funds with high NAV and reinvest in schemes with low NAV

Fact

Suppose you redeem the fund with high NAV, and re-invest in a fund with low NAV. it could be that the low NAV fund isnt performaing well and the fund which was performing well have been redeemed. Thus it is the scripts in a portfolio that determine return from a fund the value of the NAV being immaterial.

7Myth

You need to time MF investments

Fact

Mutual Funds are for an Investor and not a trader. Tarders time the market for buying and selling . The goal of Mutual Fund is to build wealth for an investor over a period of time through the buying and holding a portfolio of mutual funds and enhancing their profits through compounding. A famous quote by Peter Lynch explains the situation - 'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

8Myth

Performance of funds is directly related to the stock market

Fact

An investement in equity mutual fund scheme typically consists of 30-40 stocks and not a replica of the Sensex Or Nifty. There are times when even in downsidde where markets are in red the equity fund seems to outperform the broder indices. The fund management team keeps reviewing teh portfolio and tracking the mrket constantly to take advantage of any new opportunities to generate returns better than the market.

9Myth

Debt funds are also impacted by equity market movement

Fact

There is a differnece between Debt & Equity markets. Funds whioch are categorized as Debt funds wont have equity portfolio in their holdings so will inturn be less volatile. Since there wont be an exposure to equity in their portfolio there wont be an impact on the debt funds. On the other hand debt funds invests in T- Bills, G-sec, FD, CD, CP and other debt instruments.

10Myth

Mutual fund investments are only for youngsters

Fact

Mutual Funds are for investors who wants to earn bettter returns. Selection of the fund depends on the risk appetite of the investor. A senior citizen takes less risk in his portfolio where as a young investor will take hugher risk. There are a vriety of funds which the product basket offers to individual depending on the risk appetitte and the age and duration of the investor.

11Myth

Choosing dividend pay-out or growth option is the same in all funds

Fact

The selection of the option Growth or dividend is as important as the selecting the mutual fund itself. Investments made under growth option will not yield any short term income,this will give capital appreciation and hence returns, but not regular income. Investors opting for the dividend option will get a payout in the form of dividend. This option is ideal for short term investments. Mutual funds with dividend options are a good option for investors who require a steady income flow and not only capital appreciation.

12Myth

Mutual funds investments are riskier than stock investments

Fact

When you invest in a mutual fund, you get the benefit of a fund manager's expertise. Picking stocks, tracking them, making sector and asset allocation, booking profits as and when required, everything is done by a professional fund manager. Many stock are decades old, and one could be holding that are no longer existing today which may drag the overall portfolio returns of the stocks . A professional fund manager ensures that the portfolio holds good stocks with potential for long term returns. Investor gains from the stock picking ability of professional fund manager, does not have to track his portfolio and also benefits from tax exemption of portfolio gains.

13Myth

All NAV-linked products are highly volatile

Fact

The volatility of a fund is related to equity, debt, gold or any other aseet class for investments. Mutual funds are a basket of securities. The daily value (NAV) of the fund is the aggregate value of the individual securities taken together. NAV is the price at which you buy the unit of a scheme. Comparison of NAV of a particular fund will indicate the performance of the fund and is not associated to volatility.

14Myth

Buying physical gold is safer than investing in gold funds

Fact

Gold is a precious metal so one needs to take care of teh same. If one buys gold one needs to take a lot of care in storing and keeping the same safely. On eneeds to know that teh cost of storage is high for physical gold. where as on the other end buying gold through funds or ETF help in storing and become less risky in way of theft. Gold funds or ETF can be easily tracked and one can know the return generated on the asset class.

15Myth

It’s not safe to transact online

Fact

Today we are in the Digi Age where technology is going to another level. The Asset Management Companies have made beautiful platforms to transact online which are very easy and are not at all comlicated. The necessary security steps are taken by the respective AMC's to safeguard information of the investors which are well regulated by teh respective regulators.

16Myth

Mutual fund investments cannot be pledged as a security

Fact

Mutual funds investements cane be pleadged as security with financial institutions.

17Myth

It’s difficult to track your investments

Fact

When one invests in Mutual funds one gets all the details regardin gthe investment including the date of investment the amount invested and the NAV of the investment. The AMC initimates via sms, email. AMCs sends periodic account statements. There is also an option to get consolidated account statements whenver required.

18Myth

Investing in high performance or top-rated funds ensures better returns

Fact

Most MF schemes have different objectives and investment styles and, depending on those parameters,a fund manager will buy, sell or hold a particular stock. Therefore it is advisable to choose a fund based on your objective and risk appetite and also consult your financial advisor.

19Myth

Investing in a fund managed by a 'Star’ Fund Manager guarantees success

Fact

Markets are dynamic. Often market predictions can go right but often they can be wrong too. While someone may predict the maket direction few times, it is not compulsary that the predictions will be right always. The same is true for a 'Star' fund manager who has delivered high performance in the past may not always do so in the future. A fund having a star fund manager can not necessarily guarantee sucess for the fund.

20Myth

All mutual funds have a lock-in period

Fact

Today MFs come with a variety of diversification which can be suitable to all kind of investors. There are Open Ended schemes availabel which can be bought and sold in the market. There are close ended schemes which are listed and so can be easily bought and sold in the market. Not all funds have a lock in unlike ELSS an equity-linked savings scheme (ELSS), which is qualified for tax deduction under Section 80C of the Income Tax Act, 1961, has a lock-in period of three years. The RGESS investment has a lock-in period of three years.

21Myth

Sell mutual funds investments when markets are at a high

Fact

One does not need to worry about market flucktuations if one is a long term investor. Oen has always seen that it is not right to time the market. One should always keep in mind the investment horizon for the product invested. A consistent investor has always generated better risk adjusted returns.

22Myth

Buy MF schemes only when the markets are rising

Fact

It becomes very difficult to time the market" Todays High could be Tomorrows Low." one should be a regular investor and invest rather than tryign to speculate the market.

23Myth

One needs to be rich to invest in mutual funds

Fact

Mutual Funds is the simplest way to create wealth. In the process of weath generation MFs play a vital role as the minimum amount for investment is as low as Rs. 500. Mutual Funds deliver better returns and help in building a corpus.

24Myth

Bank Fixed Deposits are better and safer that debt funds

Fact

Fixed Deposits are for low risk apetite group of investors traditionally. Today with MFs provindg a variety full of funds one can hav ea look at Debt Funds. There are funds with low , high n moderate risk available in the market. Debt funds are better forthose who can calculate their risk and invest in instruments which will provide better risk adjusted returns

25Myth

Mutual funds are not transparent

Fact

In todays deigital world thinsg have moved to such an extent where there is transparency. MFs are no exception to the same. MFs hav eto disclose the portfolios , changes in the management, dividend declared and other stuff from time to time as SEBI the regulating authority is strict in such aspects

26Myth

All equity mutual funds schemes would diversify my investment across various sectors

Fact

Every person has a different opinion to the given situation . Fund managers also have different or smiliar opionions for the given scenrio. Its not a compulsion for the fund manager to diversify the portfolio across the same sectors for two fund managers. One can have a different view which as per him would generate better returns.

27Myth

To diversify across equity and debt asset classes, one has to invest in a equity and a debt scheme separately

Fact

With hybrid funds available in the market, investing in equity and debt investment can be achieved in the same scheme. There are hybrid funds based on the risk apetite viz., Conservative Hybrid, Balanced Hybrid and Aggressive Hybrid which will invest in different asset classes.

28Myth

Does the need for liquidity deter you from investing in mutual funds?

Fact

Oen should not be away from MFs, the industry has funds which provide stability, income, growth, wealth creation and liquidiuty. Suppose an investor needs to invest in and wants a certain part to be in liquid he can opt for a liquid fund and another fund which will suit his need and provide the best optimal returns as per his profile.

29Myth

Funds with a higher NAV have reached their peak

Fact

This is a very common misconception because of the general association of Mutual Funds with shares. One needs to keep in mind that the NAV of a scheme is nothing but a reflection of the market value of the underlying shares held by the fund on any day. Mutual Funds invest in shares, which may be bought or sold whenever deemed appropriate by the Fund Manager depending on the scheme’s investment strategy (Buy-Hold-Sell). If the Fund Manager feels that a particular stock has peaked, he can choose to sell it. A high NAV does not mean the fund is expensive. In fact, high NAV indicates a good performance of the scheme over the years.

30Myth

Open-ended funds are better than close-ended funds

Fact

Open ended funds are those funds that do not have a fixed maturity period. One can buy and sell these funds just anytime. These funds offer high liquidity. Close Ended Funds on the other hand have a fixed maturity date. One may buy these schemes when they are launched as initial issue or buy or sell the units when they are listed on the stock exchange. In Close ended funds, the investment of the investors are kept invested for a longer time which gives it the necessary boost and capital appreciation that it receives due to staying invested

31Myth

All mutual funds qualify for tax deduction

Fact

No, not all mutual funds are eligible for income tax deductions. There is a particular category of mutual funds which is eligible for tax deductions. It is called Equity Linked Savings Scheme (ELSS) which is an equity diversified fund with a 3 year lock in period. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act.

32Myth

Mutual funds are only for the long term investing.

Fact

Mutual funds are useful for every investment purpose, be it short term, medium term or long term. While Liquid and Short-term Debt funds are suitable for short and medium-term requirements, Equity funds are ideal for long-term needs. Hence, while it is advisable to invest for longer term to ensure wealth creation, there are mutual fund schemes to cater to the shorter term needs of the investors too.

33Myth

Stop SIPs when markets are rising

Fact

When the markets are rising, you should still invest as SIPs keep emotions at bay and inculcate a savings habit. Regular investing, and not market timing, is the key to long term wealth creation.

34Myth

Mutual Fund investments are for experts.

Fact

Mutual Funds are investment vehicles for all. For experts, for novice. Mutual Funds can suit the needs of all.

35Myth

You need to have a Demat account to invest in Mutual Funds.

Fact

One can can invest in Mutual funds directly through a fund house's website or through a distributor or through an intermediary on stock exchanges. Earlier, to buy through an exchange, a demat account was necessary. But now one can transact in Mutual funds on exchanges (via a registered adviser or a broker) without opening a demat account. A statement of account is generated and shared with the investors of Mutual fund schemes which shows details of their holdings such as purchase value, number of units and current value.

36Myth

To invest in Mutual Funds you have to do KYC separately for every fund house

Fact

There are around 39 AMCs which function in India. An investor can invest in any fund available for investment in the market. For investing in a Mutual fund an investor needs to be KYC compliant. KYC is done either by the AMC or by the RTA agent. A KYC compliant investor doesnt need to do his KYC again at the time of his second investment.

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