Mutual fund myths can be learned. Many marketers and agents are the people who are cheating on the market.
Let’s see some of the common myths associated with mutual funds below .
1. A mutual fund with a high net worth is better than other MF’s with a low NAV.
The NAV of a mutual fund (MF) is not comparable to the price of equity shares. Comparison of NAV of MF unit and Share price
NAV = (market value of all the shares held in the portfolio + Cash – Liabilities)/ total number of units
Share Price = combination of company’s fundamentals, demand-supply, public perception about the company + other complicated things
Funds quality and values determine returns, not NAV, but just the book value.
Example : Consider Fund A with NAV Rs 100 and Fund B with NAV Rs 5 . Both has corpus of Rs 10,00,000, Fund A has good fundamentals and is better mutual fund in terms of strategy compared to Fund B. After 1 year say their return is 40% and 30% as expected. So the NAV for A will be 140 and for B will be Rs 6.5 and fund A will give better returns compared to fund B.
The strategy and asset allocation, which is essential, is important to understand. Low NAV will only purchase more units, nothing else.
2.Mutual funds with good past performance are the best way to invest.
This is a common misconception among the mutual funds investors that funds which have performed very well in past are the best investment. Since ABC mutual funds have shown a 60% return and XYZ has shown a 45% return, it is a given choice to be in the 2010 xyz mutual fund.
They should understand that performance over a couple of years has very little to say about them. To understand how a mutual fund has performed, they must analyze its performance over 4-5 years at least.
3.NFOs yield better returns.
NFO’s are more risky than existing mutual funds as they don’t have a track record. They are simply not magic with NFO. A NFO must be generally avoided until they have very strong strategy and unique and strong idea.
4.Making money from mutual funds is a good way to do so.
All of them have the same kind of investment portfolio. They should put money in limited mutual funds and they should use some of these mutual funds.
The 5 common misconceptions that every beginner investor has when investing in mutual funds are listed. In investing in mutual funds, there is much you need to know to maintain a healthy portfolio.
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