Have you seen a rocket going up (or Kim Jong testing the ICMBs.. Jokes apart)? To get itself into the orbit, it has to leave various bottom parts. It gets rid of itself from the unwanted and heavy burdens. Scientists call it various stages of launch. Same way in order to achieve success in investing you need to get rid of some unwanted untrue stories. Let’s debunk some more mutual fund myths.
Myths are nothing but old age assumptions, often used by mis-sellers to prove their points. A myth is never true. It stops or reverses the benefits. Hence when it comes to investing you need to get rid of these.
Who creates Mutual Fund Myths?
All those who deal with it:
- Manufacturers: The mutual fund companies have not borne them as a child but yes nurtured them for their advantages. (Eg dividends paying MFs are good. Growth option is bad & not transparent)
- Advisors/Agents/Brokers: Very few provide full information and disclosures. Does your advisor tell you that SIP in equity is for 5 years plus? Some hide full information to let sales happen on what they think (often a myth). Do advisor take a stand and say “NO” if they feel wrong? If you are affirmative you are in good hands.
- Media: Especially the open media like youtube. See this video
(CAUTION: Most of the things are absurd, untrue & pathetic to say in this video). But look at 119000+ views? Very few read the comments below. They believe and form a myth of what they see.
- YOU: Yes you also contribute when you say confidently few things “which are not correct”. Many people treat shares as “daily breakfast” because their fate is tied to paan chewing trader who keeps making lassi (churning) their hard earned money. But you make sure everyone in the family (especially your wife’s) & office know that “you deal in millions daily”. This is you creating myths about investing.
We have written about 3 mutual fund myths earlier. Click for details here. These were:
- SIP is better than lump sum: Many investor “do SIP” not mutual funds. SIP is a bigger brand than MFs today. Look here:
(You can see or follow me on Quora https://www.quora.com/profile/Madhupam-Krishna)
No lump sum and SIPs are for different requirements and they both are good to invest.
- Lower NAV means Fund is Good: That’s like defying the mathematics. The fund returns are in percentages, not absolute numbers. So how do NAV matters? Find your returns in these 2 simple steps:
- (NAV you Withdraw (Or day of calculating returns) Minus NAV you Purchased) Multiply No Of Units
- Subtract the above figure by original investments.
Simple. Details already here.
Point is NAV has no bearing on your returns.
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- Mutual Fund declaring Dividend is good: Another classic myth. Because marketer can go/talk/influence buyer many times during investment showcasing the amount to invest more.
Now the NEXT four. Let me shut up and pictures do the talking:
- MFs are for experts only.
- MFs are same as investing in Direct Equity
- You need a large amount to invest. Small has no place in investing world.
- Number of funds means – better diversification (or Khichdi Portfolio)
We will keep debunking more in coming times. Hope you learned the valuable lessons for today.
Share your thoughts & experiences on mutual fund myths.
Hope you will share the article with your family & friends. They need to face the faceless myths too.