Myths Related To Investing In The Popular Savings Instrument

So you’ve decided to invest your money, but where to invest is still a question? Mutual Funds, where you give your money to someone more informed about the markets for high returns, is the best choice for beginners. However, there are many myths associated with investing and picking the best mutual funds. Gaining knowledge is never-ending exercise. The various misconceptions which many investors hold while buying mutual funds.

  • Lower the NAV, cheaper is my fund – The Commonly believed that when the NAV is lower, the fund is cheaper and hence will provide higher returns. NAV is nothing but the current market value of the portfolio today. Older the fund, higher is the NAV as the market value grows over a period of time.
  • The investment has to be for very long-term – When someone suggests a mutual fund, the first question asked is whether it is “long-term ” investment. The fact is its good if you invest for a very long term, as you the benefits of compounding.
  • The investment sum has to be big – A common myth among investors is everyone feels one must have a large number of funds to invest in a mutual fund. But the reality is that you can start investing in a fund with as small as Rs 500 only.
  • Mutual fund equals to no risk – It’s important to note that no single mutual fund in this class is clearly superior to any other. Rather, the quality of a given mutual fund can be judged by the risk-return ratio that it offers. There are several funds that offer approximately equal rates of return at approximately equal levels of risk.. This acknowledgement is always made to you, when you sign the document of an agreement while investing, which is often missed by investors.
  • History will always repeat – Everyone who tends to invest in mutual funds first looks at the historic performance of the fund and then decides to make the investment. Therefore we can clearly say everyone feels the future performance will be linked to the previous performance and will fall in line. Always expect returns only as high as you are willing to risk. Unrealistic profits require unrealistic investment and risk appetite.
  • Investing in higher rated funds will fetch higher returns – People believe that the fund which has the highest ratings are safe and will give the best returns. The truth is mutual fund ratings are dynamic and are based on the performance of the fund at that given point. So, a fund that is rated highly today, may not necessarily maintain its high rating tomorrow and it also doesn’t guarantee a better performance going forward.

Investing involves risk and the sooner you accept the fact, the easier it would be for you. So figure out how much risk you can afford to minimize your loss in mutual funds. Have a goal in mind and invest to achieve that. The goal will motivate you to stay invested and meet the target.

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