Some Myths About Mutual Funds

An Investor Education & Awareness Initiative By Franklin Templeton Mutual Fund

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• Mutual Funds lack the excitementMyth 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 expensiveMyth Clarified: In fact they reduce your cost of investing

Myths Based On Incorrect Beliefs

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• A Mutual Fund scheme invests in the same stocks as its benchmark indexMyth 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 debtMyth 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 fundsMyth 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

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• Only Small investors go in for SIPsMyth 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

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• I’ll be penalised if I miss one or two SIP datesMyth 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 SIPMyth 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 yearsMyth 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

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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

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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 tenurefor each installment

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Lets Do A Short Quiz!

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

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1) When markets are high, ideally it may be the right time to invest via the SIP modeA. True B. False

2) Investing in a mutual fund scheme only on the basis on star rating / ranking isA. The end to picking winning mutual fund schemes

A. Just the starting pointB. 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 overA. November 2016 B. January 2017C. December 2016 D. November 2017

Quick Quiz

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4) You will be penalized for missing one or two SIP datesA. TrueB. False

5) An actively managed mutual fund scheme does which of the following?A. Strictly replicates its benchmark index for its portfolioB. Need not always replicate its benchmark for its portfolioC. Need not provide you SIP

Quick Quiz

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Thank You For Participating!

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Mutual Fund Investments Are Subject To Market Risks, Read All Scheme

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