There is a large number of such investors in India who miss out on this excellent investment avenue by falling prey to myths, primarily due to lack of knowledge and proper guidance. Given below are some myths surrounding mutual fund investing:
Myth 1: MFs invest only in shares & are risky
Mutual funds invest in shares, gold and also fixed income products like bonds, non-convertible debentures, government securities, corporate debt instruments, bank certificates of deposit (CDs) and corporate commercial papers (CPs). In fact, almost 70% of the money invested in mutual funds in India currently is in safer fixed income funds. The risk in mutual funds depends entirely on the risk you wish to take. You can invest in low-duration debt funds to have almost no risk to your investments. On the other hand, thematic and diversified equity funds let you have higher risks.
Myth 2: You need to have a demat ac to invest in MFs
Most mutual fund investing in India is done without a demat account. There are a large number of online portals that let you buy funds online without a demat account. You need to have a demat account only if you wish to trade mutual funds online.
Myth 3: NFOs are good since they offer units at lowest
NAV Performance of mutual funds is measured in annual percentage returns. Whether the NAV is Rs 10 or Rs 100, it does not matter. New fund offers (NFOs) could actually be risky since the fund management team managing the NFO may not have an established track record. NFOs should be subscribed to only if there's a very compelling theme on offer, which is not available in any other existing well-performing, open-ended funds.
Myth 4: You can pick best funds from a website & invest
This could be a way to prepare a portfolio. However, in case of equity funds, care should be taken to pick up good funds of different fund categories so that all the funds do not land up having similar underlying stocks, which defeats the very purpose of diversification. In case of debt funds, interest rate movements and your own fund requirement should dictate the type(s) of funds to pick up. Also, choose funds with a stable and a well-performing track record and managed by proven fund managers. Do not look at only short-term past returns while choosing funds.
Myth 5: When markets go up, I should redeem my equity funds
Investing should be for meeting your financial goals and not just to make more money .If the goals are still far away, there is no reason for you to redeem. If you feel markets are likely to go down, you may shift the funds fully or partially to safer debt funds, rather than disinvesting and then letting that money lie in bank products that give low returns.
Myth 6: MFs are a product like shares, FDs, insurance, etc
Unlike other instruments, mutual funds are more like a basket of products. You have safer debt funds that give you exposure to bank, company and government securities, while equity funds invest in different categories of stocks, and gold funds invest in gold. You can also get a combination of two or all three of these products. The facility to seamlessly shift between these different products is also available without selling the funds - something that is not available in FDs, insurance and shares.
Myth 7: Dividend option is better than growth option
Dividend in mutual funds is not a fixed return. The date and amount of dividend depends on the fund manager. Hence, you may get dividend when you don't need it, and not get it when you need it. Also, your fund NAV goes down by the amount of the dividend when it is declared. Systematic Withdrawal Plan (SWP) in a growth option may provide more certain returns if you need to get money at regular intervals.
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online -
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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