Investment in mutual fund (MF) is always risky : No, it is not. Mutual fund is not necessarily all about
equity or stocks. Mutual funds also deal into debt instruments like Certificate of Deposits (CDs), Bonds,
Govt. Securities (G-Sec.), Non-convertible Debentures (NCDs) etc. This means that a mutual fund scheme can
also have all or some of these debt instruments in its portfolio. Different debt instruments have different
maturity periods. MF schemes which are having debt papers of very small duration are least risky. Such
schemes are known liquid MF schemes. These schemes can be as safe and as liquid as your savings bank a/c.
Similarly, carefully chosen debt MF schemes can be as safe as fixed deposits along with better tax-adjusted
return.
Investment in MF requires demat a/c : No, it does not. Though equity MF scheme does invest into stocks of
companies, but you need not to have a demat a/c to hold units of such MF schemes. All you need is to be KYC
compliant (i.e. having PAN and valid address proof) and have an active bank account. That’s it. At
FundzBazar (check the login section of this site to register or sign-in to trade instantly in mutual fund
schemes) you can even invest completely online and instantly that too without having any demat a/c!
Investment in MF requires timing the market : No, you need not to time the market if you are investing for
long term through Systematic Investment Plans (SIP) i.e. investing a small amount at regular intervals for a
number of years. If you do that then, your investments will reap the benefit of rupee cost averaging i.e.
buying more units when price is low and buying lesser units when price is high by investing same amount
every time.
Higher unit value (NAV) means a costly purchase : No, it does not. Let me give you an example. Suppose you
asked me, the rate of inflation in last 2 financial years (FY) and I told you that in FY 2013-14 cost
inflation index (CII) stood at 939, and in next two FYs CII values were at 1024 and 1081. Does it mean
anything to you? No. It would have helped you instead if I had told you that in last two FYs rate of
inflation were 5.57% (FY 2015-16) and 9.05% (FY 2014-15). So what matters is percentage of relative change
and not the value itself as the base values in cases of both inflation (at 100) and mutual fund NAV (at 10)
are assumed for ease of understanding and measurement. So look at yearly growth rate of a scheme’s NAV
rather than NAV itself. If it’s consistently beating its benchmark return then it’s worth considering.
Returns from all MF investments is taxed similarly : If in portfolio of a MF scheme, percentage of exposure
into equity type of instruments is more than or equal to 65% - such schemes are then known as equity
schemes. Similarly, if percentage of exposure into debt type of instruments is more than or equal to 65% -
such schemes are then known as debt schemes. Equity schemes and debt schemes are taxed differently. Taxing
also depends on how long you hold the investment before you sell. If equity schemes are sold after holding
for more than a year – then 10% tax is to be paid over and above of Rs. 1 lakh gain. If debt schemes are
held for more than three years then on indexed gain 20% tax is to be paid. If investments are held for
shorter-term then short term capital gain tax is to be paid as per one’s tax slab.
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