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Some Myths About Mutual Funds

An Investor Education & Awareness Initiative By Franklin Templeton Mutual Fund


• Mutual Funds lack the excitement

Myth Clarified: The excitement can be done away with for long-term wealth

creation through mutual funds

• Mutual Funds are too diversified

Myth Clarified: In fact diversification helps to reduces risk, while a concentrated

portfolio elevates risk.

• Mutual Funds are expensive

Myth Clarified: In fact they reduce your cost of investing

Myths Based On Incorrect Beliefs


• A Mutual Fund scheme invests in the same stocks as its benchmark index

Myth Clarified: The benchmark index only serves the stated purpose i.e. benchmarking returns. It

offers investors the opportunity to evaluate the fund's performance. It need not always construe

that an actively managed mutual fund scheme would invest in stocks that form a part of the

benchmark index

• Mutual Funds invest up to 35% in debt

Myth Clarified: While such an allocation may form a part of the investment mandate of equity

mutual funds, they may not use the mandate in a stricter sense to invest in debt

• Funds with more stars/higher rankings provided by independent third party agencies make

better buys

Myth Clarified: At best, rankings and ratings can serve as starting points for identifying a broader

set of "investment-worthy" funds; but they are not the end to picking winning mutual funds.

• Once the fund house makes the grade, so do all its funds

Myth Clarified: Just because a fund house makes the grade, it doesn't necessarily mean that all

its funds are worth investing in.

Myths Based On Incorrect Facts


• Only Small investors go in for SIPs

Myth Clarified: Please note that SIP stands for Systematic Investment Plan (SIP) and not Small

Investors Plan. They infuse a disciplined investment habit of investing regularly and provide you the

benefit of compounding along with rupee-cost averaging.

• Rupee cost averaging can be done in a stock itself – then why SIP?

Myth Clarified: SIP experimented on a single scrip, can expose you to more volatility

unlike SIP in a mutual fund scheme which reduces the risk, due to diversification provided by mutual

funds.

• SIP Mutual Fund schemes are different from lump sum mutual fund schemes

Myth Clarified: The fact is SIP is just the mode of investing. There are no special mutual fund

schemes for SIP investments.

• Lump sum investments cannot be done in a mutual fund scheme, where a SIP account exists

Myth Clarified: SIP is just the mode of investing. Hence investing a lump sum amount to a mutual

fund scheme where your SIP exists is possible.

Some Common Myths About SIP


• I’ll be penalised if I miss one or two SIP dates

Myth Clarified: Since an ECS mandate is usually signed, the question of missing SIP dates

doesn’t arise. Also on the SIP date if you do not have sufficient funds in your bank account, you

aren’t penalised by the AMC ; you will simply miss that SIP installment, but your account will

remain active

• Markets are at a low to start an SIP

Myth Clarified: Lower level markets can in fact be the right time to start an SIP and gain from

future upside. Buying “low” is better than buying “high”

• In case of SIP in tax saving mutual fund schemes, entire money can be withdrawn after

3 years

Myth Clarified: The fact is your every installment of SIP should have completed the lock-in tenure

of 3 years for you to be in a position to withdraw.

Some Common Myths About SIP


Points To Remember

• Excitement is not good for one’s investment portfolio in the long run

• Diversification benefit offered by mutual fund investing helps you

reduce risk

• Actively managed mutual fund schemes do not necessarily invest in

the same stocks as its benchmark index

• Star ratings / rankings can serve as a starting point, but they aren’t

the end to picking winning mutual fund schemes

• Never invest only on the basis of fund house


Points To Remember

• SIPs infuse regular investing habit

• SIPs offer the benefit of rupee-cost averaging and compounding

• Mutual fund schemes for SIP investment are the same as those for

lump sum investments

• There is no penalty for missing an SIP installment

• SIP in a tax saving mutual fund scheme has a lock-in tenure

for each installment


we now invite you to test your learning by taking up this simple quiz

(and win exciting prizes!)

Lets Do A Short Quiz!

7


1) When markets are high, ideally it may be the right time to invest via the SIP mode

A. True B. False

2) Investing in a mutual fund scheme only on the basis on star rating / ranking is

A. The end to picking winning mutual fund schemes

A. Just the starting point

B. Start and end to pick winning mutual fund schemes

C. None of the above

3) If the first installment of monthly SIP in a tax saving mutual fund scheme having a lock-in

period of 3 years begins in November 2013, when would the 3rd installment of the tax saving

mutual fund scheme get over

A. November 2016 B. January 2017

C. December 2016 D. November 2017

Quick Quiz

8


4) You will be penalized for missing one or two SIP dates

A. True

B. False

5) An actively managed mutual fund scheme does which of the following?

A. Strictly replicates its benchmark index for its portfolio

B. Need not always replicate its benchmark for its portfolio

C. Need not provide you SIP

Quick Quiz

9



Mutual Fund Investments Are Subject

To Market Risks, Read All Scheme

Related Documents Carefully.

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