Busting The Myths Of MF Investing
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.