If you are an investor in Mutual Funds for last 7-8 years then probably you are one of the witness of dramatic changes in this industry. From visiting to a distributor office for filling the application form to doing the same at your office or home with a mouse click, the journey has been quite memorable.
From days of industry giving high commission to distributors to now customers paying the cheque directly to advisors,the feeling was that these changes will also help in educating customers on Investing in Mutual funds.But after meeting many investors, i found there are certain misconceptions which were jot down by distributors during the initial phase of the industry and which still persists today.These misconceptions gives a feeling we still have a long way to go before investors start understanding real benefits of Mutual Funds Investments.
Following is the list of such misconception which any investor will ask before investing in a Mutual fund scheme:
1.Instead of one why not invest in five schemes to diversify-Over Diversification
I have an invester who has invested in 50 Mutual Funds schemes on the advise of his previous distributor.The reason was to diversify the portfolio.What he failed to understand is that by overdiversifying he is risking his total portfolio for underperformance.The concept of diversification is to select few good schemes for investment and grab the opportunities available in the stock market.By over-diversification you get exposed more to under performing schemes and thus miss out the opportunities of best returns.
2.This NFO at 10 is very cheap
The most discussed misconception with every second investor.Rationale is that by getting more units your profit is more. Not True. If thats be the case then fund like HDFC Top200, DSPBR top100 Equity and BirlaSunLife Frontline Equity would have been struggling to convince investors and generate corpus.But their performance itself speaks the truth. Fund Performance rest on Investor Risk Apetite,Portfolio of Stocks,Fund Manager,Expense Ratio and Other factors.Higher Units does not guarantee Returns.
3.SIP for 6 month to a year.
Systematic Investment Planning or SIP as it is known,is a very good tool for wealth creation.But most investors fails to understand this and it is being used as a mere breaking a lump sum investment into tranches.The drawback of such thinking is that you are investing for returns and not for wealth creation.Moreover,investors misunderstanding is that SIP is a scheme and not an option.
By highlighting these misconceptions, the idea is to generate awareness and educate todays investor so that he/she can reap the real benefits of Mutual Funds.The mis-selling through these misconceptions has only decreased not stopped. So if you are about to make an investment decision based on these,think again.
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This and All the other Articles/Videos on this blog are for general Information and educational purposes and not to be taken as an Investment Advice. Any Action taken by Readers on their Personal finances after reading our articles or listening to our videos will be purely at his/her own risk, with no responsibility on the Writer and the Investment Adviser. Registration Granted by SEBI, membership of BASL and Certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors.