Mutual fund is a great financial tool for wealth creation. However, there are a lot of myths around this instrument.
1) You should be an expert in the field. Mutual funds are managed by well qualified professionals. They analyse your risk profile and suggest a fund to suit your financial goals.
2) You should invest a huge amount. Mutual fund investment can be started with as low as Rs. 500 per month through SIP.
3) Higher the scheme ratings better are the returns. Ratings can’t predict future returns of a fund. Ratings can only give you an idea about the past performances of a fund.
4) Mutual funds invest only in equities. About 66% of the assets under management of mutual funds are in debt funds and only about 32% in equities.
5) Demat account is a must. You can invest through distributors or by buying funds directly from fund houses.
6) Guaranteed returns. Mutual funds are market linked and so returns are not guaranteed.
7) NAV value. The value of the NAV has no effect on a fund’s returns.
8) No scope for short-term profits. There are funds investing in short-term markets and can provide short-term returns.
9) Restricted to domestic markets. Mutual funds also invest in international markets.
10) Buy and forget your investments. You have to monitor and revising your investments in regular intervals.