Investing through mutual funds in the right way can help you accumulate significant wealth over a long period of time. But due to many misleading ideas and assumptions about it, many investors stay away from them. They are here:
Myth 1: Mutual funds are hard to sell
Contrary to this belief, mutual funds are highly liquid. Its units can be redeemed at any time and the money will be credited to the designated bank account within two or three business days.
Myth 2: Mutual funds are all about equities
This is a completely wrong notion. Apart from equity mutual funds, there are other fund categories as well. Like debt mutual funds. The difference between both equity and debt is that when you invest in equity mutual funds you buy a share of a company, and when you invest in debt funds, you lend money to the company.
Then there is the third category which is Hybrid Funds. This includes both equity funds and debt funds. Their allocation is decided according to the market movement. Apart from these three, there are some fund categories which also invest in commodities.
Myth 3: Mutual funds with low NAV are bad funds
Net asset value or NAV has nothing to do with the quality of the fund. This is simply the per unit price of the mutual fund. That is, if the NAV of the fund is low, then you can buy more units of the mutual fund. And, when the NAV of the mutual fund goes up, your investment value will also increase.
Let’s say you want to invest ₹50,000 in mutual funds. Now, suppose the NAV of each unit of the mutual fund is currently ₹50, then you will be able to buy 10,000 units of the mutual fund. Now, next year, i.e. year 2, suppose, the NAV per unit of mutual fund increases by ₹60, then your investment value will be ₹60,000.
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