We live in a country where people have the tendency to offer plenty of advice for free of cost. Take it or leave it, but you can’t escape it. There are two types of people who give advice – those who think they know more than anyone about a particular topic and those who actually charge people and offer professional advice in exchange.
Same occurs when it comes to mutual funds. You will hear a lot of people commenting, “Don’t invest in mutual funds”, “You will lose out on all your savings, “You will go bankrupt”, blah blah blah. But the problem here is several of these people who cast such strong opinions are completely oblivious to the knowledge and understanding about mutual funds.
Mutual funds are nothing but an investment vehicle where the fund house collects money from investors sharing a common investment objective and invest this pool of funds across the Indian economy in various sectors. Asset allocation happens depending on the risk profile the mutual fund carries and the objective it wishes to achieve. Mutual fund holders are referred to as unitholders as they receive units in the form of shares. These units are allotted according to the existing NAV or net asset value of the mutual fund.
And here are seven mutual funds advises you should blatantly ignore:
Sell your mutual fund after receiving dividends:
Remember that dividends are rolled out from the fund’s NAV. You are receiving from your own invested money and hence selling the funds after the declaration of dividends will be a rookie mistake.
Invest in a fund that has a low expense ratio:
Funds that have a low expense ratio are passively managed funds. These funds do not involve the active participation of the fund manager and set the underlying index as their benchmark. Investing in such funds might not be an ideal choice because, without the expertise of the fund manager, these funds may not be successful in achieving its investment goal. So sometimes, investing in a mutual fund with a high expense ratio might actually be a good idea.
Invest in a mutual fund that has low NAV:
A lot of investors are advised to buy a mutual fund that has a low NAV. But remember that NAV of a mutual fund is nothing but a reflection of the fund’s current market value minus its liabilities. So a fund’s growth doesn’t necessarily depend on its high/low NAV. So it is not something that you should be evaluating which picking a mutual fund.
Learn to time the market:
Timing the market is something that even professional and seasoned investors aren’t able to do. So why waste time and hold on to your investments? Because there is never going to be a ‘perfect time’ to enter the market. Hence, it is better that you invest in a mutual fund as early as possible rather than wasting time behind trying to time the market.
Invest in mutual funds that only offer dividends:
As we stated earlier, the dividends distributed to investors are deducted from the fund’s NAV. So in the long run, this is not a good thing for the fund’s financial stability and might actually lead to the downsizing of the fund. Hence, do not restrict your mutual fund investments to dividend delivering funds.
Invest in the highest performing fund:
Just because the mutual fund has given excellent returns for the past one year doesn’t necessarily make in a worthy investment fund. Remember that such mutual funds can be one-season wonders and may not be able to live up to its expectations the following year. Hence, it is better to invest in a fund that has offered low but consistent returns rather than investing in high performing funds.
Avoid investing when the market is underperforming:
Investing in a mutual fund when the market is down might actually benefit an investment. That’s because when the market starts performing, this will add to the value of the fund’s NAV and investors also stand a chance to benefit from rupee cost averaging.
We hope that the above tips come in handy and help you make a smart investment decision.