More about mutual funds
Posted on: 03/Sep/2015 3:22:33 PM
To benefit completely from your mutual fund investment, you need to know the myths that are floating around, and get your facts right. Here are a few facts that you need to know.
The number one myth about mutual funds is thatchy need large investments. But you can start off with lower amounts to invest, sometimes as low as Rs. 1000. For example, if you need to invest in real estate, you will need lakhs or crores. But, in a real estate mutual fund, you can invest a low amount of a few thousand rupees and benefit from price appraisals. The best time to invest is when you have money to spare. Don`t wait until `the market gets better`. It may get better - or worse! - the very next day.
Another misconception is that mutual funds are long term investments. The funds can be both short term and long term, depending on your preference. A short term investment is one that it less than 5 years. Those who choose to invest in this fund can choose debt mutual funds. The long term investments can be equity mutual funds. Determine your investment goal and its risk profile before making a decision.
Not all mutual funds qualify for tax deductions. Only the Equity Linked Savings Scheme (ELSS) is eligible for tax deduction under Section 80C of the Income Tax Act. Any dividends or capital gains from this investment are tax free. Also, capital gains from equity mutual funds after 1 year are exempt from tax. Capital gains from debt funds are tax free for 3 years. Compare popular 80C investment options before choosing your tax free investment.
Mutual funds are not equities. The investor does not invest only in stocks or the equity market. Mutual funds invest in equity mutual funds, debt mutual funds and money market funds.
Many people think that a mutual fund with a lower NAV (nett asset value) cheaper. This is not true. The NAV is representative of the market value of the fund`s investment and not the market price itself. Do not look at the NAV. Instead, choose older funds as they have longer track records.
Mutual funds for children do not secure your child`s future. Any returns will depend on the market. Remember that no scheme can guarantee returns. Analyse performance, risk and returns of any fund you wish to invest in. Another thing to remember is that you do not need to invest in more than one mutual fund for diversification. A mutual fund in itself is diverse.
