Clearing the air about Mutual Funds
Imagine mutual funds as an organization which bring together a group of individuals to invest their money in stocks, bonds, and other securities. Each person owns shares as an investor, and these shares act as a portion of the fund’s holdings.
There’s always a lot of speculation about mutual fund investments, so let’s break down the misconceptions related to mutual funds.
Mutual Funds Simplified
Before we start debunking the top mutual fund investment myths, it is important that we understand how a mutual fund works. There are three mutual funds basics which help can help you earn money.
- Income can be earned based on the dividends from stocks and interest on bonds. The investor will receive a distribution of these earnings.
- The fund might sell securities that have increased in price. If this happens, it means the fund has made a capital gain and the investor will receive a distribution.
- Fund holdings might increase in price, but remain unsold by the fund manager. This results in an increase in price of the shares, which can be sold for profit.
While these methods might seem a bit complicated, keep in mind that your money will be professionally managed by someone who is well versed with market behaviour. Bajaj Finserv uses professionals with considerable expertise, resources, and experience to help you find favourable investment opportunities with their Mutual Funds Program.
What to Watch Out for?
Now that you have a fair idea of how they function, let’s take a look at the do’s and don’ts of mutual funds.
- Choose a fund with a trustworthy history.
- Monitor your fund’s performance annually.
- Invest through SIPs.
- Invest according to your own goals and investment horizon.
- Compare expense ratios.
- Hastily invest without thorough research.
- Panic if the value of your fund decreases.
- Invest large amounts of money all at once.
- Chase fund performance.
- Ignore additional expense charges.
Some financial institutions will also give you tools to assist you with your decisions. Bajaj Finserv for example issues an informative newsletter with information pertaining to mutual funds every month.
Myths to Ignore About Mutual Funds
There are a number of different myths that surround mutual funds. This list addresses them, and looks at the reality of mutual funds.
- You Need to be an Expert: Your fund manager will be able to handle your funds, as well as provide you with advice on where to invest.
- They are Only for Long Term Investors: There are many short term schemes available to those looking to make an investment in a smaller time frame.
- They are an Equity Product: Mutual funds can invest in a range of items, including equity or debt.
- Mutual Funds with a Low NAV are Better: A low net asset value is not everything. A fund’s track record however, is a big factor.
- Mutual Funds Need a Lot of Money: Some funds only require Rs. 1000 to start off with.
- You Need a Demat Account: There are plenty of alternate options available both online and offline.
One of the easiest ways to avoid confusion related to mutual funds is to find a trustworthy financial institution to manage your investments. For example, Bajaj Finserv, who have tied up with 14 other asset management companies and offer a wide range of Mutual Fund schemes.