“Mutual funds are subject to market risk, please read the offer document carefully before investing.”
Generally spoken at full pace, these words for a lot of us, form our basis of knowledge about mutual funds. While mutual funds are a rather convenient way to invest in stock markets and to create some wealth, a number of people still remain wary of this mode. Yes, mutual funds are subject to market risks, but there are so many misconceptions surrounding the concept that people tend to stay away from this instrument of investment.
Before we can even consider mutual funds, we need to get rid of the myths that surround them:
1. You need to be a financial pro
People avoid mutual funds, thinking that they need expertise before they can invest in them. Fund managers will do most of the heavy lifting, including researching, buying, and selling on your behalf.
2. You need a large capital
If you’ve been thinking that you can invest only when you have a substantial amount of money, you couldn’t be more far away from the truth. You can start with investing as little as Rs. 500.
3. Having a Demat account is essential
You can invest through fund houses or distributors as well. Having a Demat account is beneficial, but not a must.
4. High rated schemes work better
Scores are assigned to mutual funds based on their performance. While these are a measure of the success of a fund, they are not predictions. Ratings may keep changing and firms with good scores may also underperform.
5. Guaranteed returns
Mutual funds are linked to the market and therefore, the returns are not guaranteed. With so many assets affecting the market, the funds are exposed to both macro-economic and micro-economic scenarios, and are subject to the ups and downs, meaning that the returns may fluctuate.
6. No short term profit
While long term investments yield the best returns, owing to the fact that equities give high inflation adjusted returns in the longer run; this does not mean that short term investments don’t give profits.
7. Always buy low NAV funds
The size of any fund’s NAV is not an indication of its capacity to generate returns. If you must, take into consideration the future prospects, past performance, fund management, etc. instead of the NAV.
8. Buy and forget the fund
A fund cannot be bought and forgotten. It needs to be monitored regularly and revised, based on the market movements. You will need to keep an eye on the market and shuffle your portfolio as the requirements arise.
9. It is restricted to the domestic market
You are not supposed to only invest in domestic markets. In fact, mutual funds are a great way to access foreign markets.
10. Past trends are significant for the future
While past performance makes a difference in your selecting any mutual funds, it does not indicate future returns. A fund’s performance is linked to market fluctuations and is therefore, subject to change.
Despite all the misconceptions that surround mutual fund investments, these are one of the best integral modes of investment. You can simply choose between conservative returns from debt mutual funds or aggressive growth from equity mutual funds, and get started on the investment.
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