A myth refers to a widely held but false belief or idea.
The more popular a particular subject, more likely for it to
have myths associated with it.
In today’s time and age when dissemination of information is
only a click away, it is only natural for myths & false information to
spread like wildfire.
With the rising interest in mutual funds over the past few
years, there have been several myths associated with it that have not been
completely debunked.
SIP Mutual Funds
& Mutual Funds
Myth
SIP Mutual Funds & Mutual Funds are two different
concepts.
Fact
There is no such thing as a SIP mutual fund. SIP is merely a
mode of investing in mutual funds.
There are several modes of investing in mutual funds such
as:
- SIP
- Lumpsum
- STP
SIP mutual fund therefore only refers to a particular mode
of investing in mutual funds.
Demat Account
Myth
You need a demat
account to invest in mutual funds.
Fact
You do not need a
demat account to invest in mutual funds.
You only need a banking account and have to be KYC complied.
Demat account is only needed for ETF’s (Exchange traded
Funds).
Amount
Myth
You need a big amount
to invest in mutual funds.
Fact
You can start a SIP
with an amount as low as 1,000.
For a first time investment in a particular scheme, lumpsum amount
in most cases is 5,000.
For additional lumpsum investment in a particular folio, in
certain cases you can invest with as less as 1,000.
Additional reading: Click Here to read about what the Chinese Bamboo can teach you about equity investing
Long Term
Myth
Investing in mutual funds is only for the long term.
Fact
You can invest in
mutual funds for the short term (under 3 years) by investing in debt funds.
Debt mutual funds can be further divided based on the
duration from 1 day to 3 years.
Debt & liquid mutual funds can be utilized for short
term goals like a vacation, purchasing an electronic item, etc.
Equity
Myth
Investing in mutual
funds means only investing in listed companies of the stock market.
Fact
Not all mutual funds
invest only in listed companies of the stock market.
Some invest in purely debt while others might also invest in
cash and other fixed income instruments.
For a fund to qualify as an equity fund it needs to invest a
minimum of 65% in listed companies of the stock market.
Expert
Myth
You need to be an
expert to invest in mutual funds.
Fact
The very point of investing in mutual funds is that you
receive expertise backed by experience in the form of the fund manager, their
research team and also the professional who guides you with your investment.
You can get this irrespective of how small your amount is.
Top Ranking Funds
Myth
You should only
invest in top ranking mutual funds.
Fact
You should invest in
mutual funds that are aligned with your risk profile. The so called ranking of
mutual funds changes from time to time but you cannot keep changing your mutual
fund schemes from time to time. Also every platform has their own method &
reason in concluding the rank of a mutual fund scheme which is not always the
right way.
Additional reading: Click Here to read various Investment options available under section 80c of the Income Tax act.
NAV
Myth
A mutual fund scheme with a lower NAV is cheaper than a
mutual fund scheme with a higher NAV.
Fact
A new mutual fund
scheme is launched via a NFO (New Fund Offer) with face value being 10. Th
launch price could be higher or lower than the face value though. Older funds
have a higher NAV primarily due to time & performance whereas newer funds
have a lower NAV due to less time having being passed since launch. Different
funds will also have different NAV’s depending on the categories they belong
to.
Best Performing
Schemes
Myth
You should invest
only in the best performing schemes.
Fact
You should not judge
a mutual fund scheme purely on its returns, even if you do then keep in mind
returns vary for all mutual fund schemes over time and therefore no mutual fund
scheme can be at the top at all times. You cannot keep changing your mutual
fund schemes based on varying returns, you need to invest in mutual fund
schemes that are in line with your risk profile and aligned with your goals.
Tax Saving funds
(ELSS)
Myth
You should redeem
your tax saving mutual fund schemes after they complete the lock in period of 3
years.
Fact
You are under no
obligation to redeem your tax saving mutual fund schemes after the lock in
period. You should invest in elss funds for tax planning and not just tax
saving since most elss funds are anyway flexi cap funds in reality with their
investing style. Therefore you can use your elss funds for both tax saving as
well as for long term goals, you do not have to worry about being disciplined
anyway since they come with a mandatory lock in period of 3 years.
Avail professional
advice, avoid outside noise, stay disciplined and have a goal aligned portfolio
among other things and you would have a more peaceful investing journey.
For portfolio enquiries, email us with your doubts at info@themutualfundguide.com
