There are many myths and false beliefs floating around in the market regarding mutual funds and following such myths usually ensures that the investor will not realize the full potential of returns.
The most successful investors are the ones that ignore the myths and pay attention only to what actually needs their attention. Successful mutual fund investors know key details that many do not. These secrets are what gives them an edge in their investments. Secrets No Successful Mutual Fund Investor will Tell You
Pay attention to these tips and tricks so you can become a successful investor too.
#1. Past Returns Does Not Mean Good Future Returns
When investing in any mutual fund category, don’t choose which fund to invest in solely based on its past returns. Many times, a fund manager might have taken higher than normal risk that might have paid off. The downside is that if the risk taken by the fund manager does not pay off, the mutual fund will under perform.
What to do? Always value consistent performance more than recent high returns. A high return over a long period of time is the hallmark of a good mutual fund.
#2. Lower NAV Is Not Always Better NAV shouldn’t matter when investing in a mutual fund.
Just make sure all other parameters are good.Let’s say the NAV of a mutual fund called is Rs 13.89, and the NAV of another mutual fund B is Rs 82.56. It is not necessary that mutual fund A is a better investment than B. The NAV of any mutual fund does not indicate how much it will grow.
What to do? Choose good mutual funds based on important factors like AUM, past return’s consistency and more. Ignore the NAV.
#3. Investment Value Can Go down but that’s okay
The value of a mutual fund can go down in the short term. This is even more relevant in case of an equity mutual fund.This is no reason to panic. The value of a mutual fund investment cannot consistently keep going upward. Equity mutual funds are long-term investments. Checking the value of your investment every single day and panicking at the slightest downward movement is unnecessary. In the initial years of building your investments downturns should be treated as opportunities to buy rather than to panic.If you panic and sell when the markets are down, all you will be doing is buying high and selling low.Stay invested for the long term and review your mutual fund investments every few weeks.
What to do? Don’t panic or fall for the hype. If you’re in doubt, research the market conditions carefully or contact your advisor.
#4. Timing the Market Is Hard, Keep Investing
Timing the market is very hard and is something even the best investors struggle to do. Timing the market refers to investing when the markets are low and selling when the markets are high. The problem with this approach is that it is nearly impossible to say with certainty if the markets are high or low.Think the markets are low? What guarantee is there that the markets won’t go down further? Same with the markets being high.
What to do? Opt for investing in mutual funds periodically or you could do the same regularly via SIP (Systematic Investment Plan) or STP (Systematic Transfer Plan).
#5. Returns Are More Important Than Expense Ratio
Many people look for mutual funds with a low expense ratio. In doing so, they are willing to skip investing in mutual funds that give higher returns.This is a very wrong move. Mutual fund returns that are displayed are after the expense ratio has been paid.
What to do? If two mutual funds from the same category are compared, and one has consistently given higher returns, you should invest in it without paying much attention to the expense ratio.
#6. Small Increase in Investment Amount Can Make a Big Difference in Returns
You should invest even slightly more if you can. Thanks to compounding, even a small increase can lead to a much bigger increase in returns. By increasing your investment amount by Rs 1,000, each month you can end up making nearly around Rs 2.5 lakh more over 10 years.
#7. Liquidity in Mutual funds
Mutual funds have become one of the most popular investing tools especially due to the fact that These funds have to always be Liquid for the Investors. SEBI has mandated fixed timeframes within which funds are to be transferred to the Investors bank accounts. This ensures that the investor will not have any stuck or illiquid funds unlike other investing options like real estate.
#8. Tax Benefits of Mutual Funds
Savings bank accounts are giving interest of around 3.5%. FD s give interest of 4.5 to 5.5 percent. The Interest on these is taxable at your tax bracket and returns are almost nothing.Moreover you have to pay the tax every year even though you renew your FD and do not actually enjoy the funds.In Equity mutual funds you are taxed at the capital gains rate after 1 year but you pay tax only when you redeem your investment. Similarly in debt mutual funds you are not taxed every year. You are taxed only when you redeem your investments. Debt mutual fund are taxed as long term capital gain after 3 years. In both cases there is an inflation index called indexation that is applied and it reduces your tax liability even lower.
Understand and use these simple secrets and you are on your way to a successful investing journey. These and many more investing secrets are shared by us Green Tree Distribution you go to Mutual Fund Distributor Service. Click here to Know how Green Tree Distribution can make your investing journey rewarding.