You must have heard the words myth and reality. A myth is a widely believed false idea. Well, reality…is the bitter truth. You badly want to invest in mutual funds, but your friends say, No. Mutual funds are very dangerous and you will lose a lot of money.
You are not sure what to do. Part of your mind says…Don’t invest in mutual funds. Pay heed to all the myths on mutual funds and save your hard earned money. The other half says, let’s bust all these myths on mutual funds and find out the truth.
The reason you and other investors fear mutual funds? It’s the fear of the unknown. If you invest in any financial product without understanding it or doing your research, you are bound to lose money. The same is true for mutual funds.
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It is popularly believed that if you want to make money investing in mutual funds, you must invest a large sum of money in them. Not true….You can invest even INR 500 a month in a mutual fund scheme, through a systematic investment planning popularly called SIP. You invest a fixed pre-determined amount of money regularly (say once each month), in a good equity mutual fund scheme. You then gradually increase your investment as your salary goes up.
Investing in mutual funds through an SIP, brings discipline in your investments. You also get the compounding benefit, which means the returns you get are reinvested and earn more returns.
2. You never lose money with five-star rated mutual funds
When it comes to a mutual fund, past performance is no guarantee of future returns….Even if this is a five-star rated mutual fund. Top research firms rate mutual fund schemes and if they meet certain criteria, they are given a five-star rating. You got to remember that these ratings keep changing. A five-star rated fund could lose this rating and become a three-star rated fund or even a two-star rated fund.
Ratings are no guarantee of the performance of a mutual fund. Never invest in a mutual fund, just because of the past performance.
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3. All mutual funds enjoy a tax deduction under Section 80C
Yes, mutual funds enjoy a tax deduction under Section 80C, but not all of them. Only ELSS (Equity Linked Savings Scheme) a type of equity diversified mutual fund, enjoys a tax deduction under Section 80C of the income tax act, up to INR 1.5 Lakhs a year. ELSS has a lock-in of 3 years. (You cannot touch this money for 3 years).
ELSS enjoys EEE benefits. The money you invest gets a tax deduction up to INR 1.5 Lakhs a year, the returns and the money withdrawn at maturity are tax free.
Yes…It’s the time to get rid of all myths on mutual funds. Invest your money boldly in mutual funds and soon move on the path to riches. Be Wise, Get Rich.
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