MYTHS ABOUT MU­TUAL FUNDS

Consumer Voice - - Mutual Funds -

Myth 1: Funds are only for the long term.

Yes, long-term in­vest­ments have a slight ad­van­tage, but that does not mean that mu­tual funds are only for such in­vestors. In fact, there are var­i­ous short-term schemes where you can invest for one day to a few weeks.

Myth 2: Mu­tual fund is an eq­uity prod­uct.

Peo­ple usu­ally as­so­ciate mu­tual funds with eq­uity funds, but this is not en­tirely true. Mu­tual funds invest in a va­ri­ety of in­stru­ments rang­ing from eq­uity to debt. Within debt, they may invest in debt in­stru­ments that ma­ture in a day (also known as money mar­ket in­stru­ments), to those that ma­ture in 1 year to 10 years.

Myth 3: Funds with a lower net as­set value are bet­ter than those with high NAV.

The fact is that what mat­ters is the per­cent­age re­turn on in­vested funds. So, in­stead of con­cen­trat­ing on a low NAV and more num­ber of units, it is worth­while to con­sider other fac­tors like the per­for­mance track record, fund man­age­ment and vo­latil­ity that de­ter­mine the port­fo­lio re­turn.

Myth 4: One needs a large sum to invest.

This is one of the most long-stand­ing myths that have ab­so­lutely no rel­e­vance. Most funds al­low in­vest­ments as low as Rs 1,000, with no lim­its on the max­i­mum amount. In fact, even for eq­uity-linked sav­ings schemes the amount is as low as Rs 500. Also, there is no monthly or an­nual main­te­nance charges even if you do not trans­act any fur­ther. Mu­tual funds also of­fer sys­tem­atic in­vest­ment plan fa­cil­ity in many of their schemes, al­low­ing you to invest small amounts of your choice reg­u­larly.

Myth 5: One needs to have a de­mat ac­count.

This is not true. There are mul­ti­ple ways in which you can buy mu­tual funds and some of th­ese are ex­plained here.

(i) Off­line (by filling up a form through fi­nan­cial in­ter­me­di­aries like in­de­pen­dent fi­nan­cial ad­vi­sors, banks, fi­nan­cial dis­tri­bu­tion houses, etc.) (ii) On­line: Through the many ac­ces­si­ble distrib­u­tor web­sites as well as through as­set man­age­ment

com­pa­nies (mu­tual fund com­pa­nies) on their web­sites If you have a de­mat ac­count, you can even con­sol­i­date the mu­tual fund hold­ings along with other hold­ings in the de­mat ac­count. You can buy mu­tual funds through the same in­ter­me­di­ary who may be help­ing you to buy and sell shares on the stock ex­change.

This is a very common mis­con­cep­tion be­cause of the gen­eral as­so­ci­a­tion of mu­tual funds with company shares. Re­mem­ber that mu­tual funds invest in shares, so they can get in and get out when­ever the fund man­ager deems ap­pro­pri­ate. If the fund man­ager feels that a stock has peaked, he can choose to sell it. To un­der­stand the re­al­ity of this myth bet­ter, you need to un­der­stand that the NAV is noth­ing but a re­flec­tion of the mar­ket value of the shares held by the fund on any day. In all prob­a­bil­ity, the NAV could be high on ac­count of a good per­for­mance over the years.

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