Bust­ing The Myths Of MF In­vest­ing

Dalal Street Investment Journal - - COVER STORY -

Five-star rated funds will al­ways give you good re­turns:

There are sev­eral rep­utable mu­tual fund rat­ings agen­cies and they rank funds us­ing their unique method­olo­gies which have a clear bias to­wards his­tor­i­cal per­for­mance. In­vestors should not al­ways as­sume that these five-star rated funds will pro­vide su­pe­rior re­turns. It is pos­si­ble that a lower star rated fund may out­per­form the five-star rated fund. Also, it is pos­si­ble that a five-star rated fund be­comes a four-star or a three-star rated fund next year.

SIPS mean you will never lose money :

Merely by tak­ing ex­po­sure to the eq­uity mar­kets via eq­uity mu­tual funds and opt­ing to in­vest through the SIP route does not mean that you will never lose money in the mar­ket. The prob­a­bil­ity of loss does come down dras­ti­cally, but sim­ply by adopt­ing SIP route one can­not stay risk-free.

Mu­tual fund in­vest­ment is risk-free :

Even though most of the mu­tual funds ad­ver­to­ri­als do high­lights the mes­sage that in­vest­ments in mu­tual funds are sub­ject to mar­ket risks, we find that most of the in­vestors do not un­der­stand what are mar­ket risks and lack aware­ness on the risk front. While in­vestors should re­mem­ber that mar­kets are volatile and hence risky, there is al­ways a chance of cap­i­tal ero­sion.

In­vest­ing in a fund man­aged by a 'Star’ fund man­ager guar­an­tees good re­turns :

There is noth­ing called guar­an­teed re­turns when it comes to eq­uity in­vest­ments and same ap­plies to mu­tual fund in­vest­ments even when the fund is man­aged by a ‘Star’ fund man­ager. There­fore, while in­vest­ing, in­vestor should not blindly fol­low star fund man­agers but select only those funds that meet their in­vest­ment ob­jec­tive and risk ap­petite.

De­mat ac­count is a must for MF in­vest­ing :

While mu­tual funds can be bought through de­mat ac­count, it is quite pos­si­ble that mu­tual funds can be pur­chased even by those peo­ple who do not have de­mat ac­counts. One has to sim­ply fill the KYC form pro­vid­ing de­tails of PAN card, name, ad­dress, etc. and start in­vest­ing in mu­tual funds.

Mu­tual Funds are re­stricted to do­mes­tic mar­kets :

There is no dearth of in­vest­ment op­tions via mu­tual funds in case one needs to take ex­po­sure to in­ter­na­tional eq­ui­ties. Sit­ting in India, one can now take ex­po­sure to Korean, US, Ja­panese, Chi­nese and other emerg­ing and de­vel­oped mar­kets.

Only those funds with large AUMS are good for in­vest­ment :

Big­ger funds ad­ver­tise more and are more pop­u­lar with the in­vestors. How­ever, the fund size should not mat­ter to the in­vestors as there are sev­eral in­stances where it is seen that those funds with smaller AUMS have out­per­formed the bench­mark index. The ta­ble be­low high­lights how some of the eq­uity funds with com­par­a­tively smaller fund sizes are out­per­form­ing the bench­mark in­dices and pro­vid­ing healthy re­turns to the in­vestors.

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