5 Things About Equity Mutual Funds that Experts Don’t Want You to Know

Financial experts of equity mutual funds are considered next to God whenever an mutual fund investment is to be made. Investors blindly follow the path as preached by the experts and obviously they can’t deny their prophecy regarding a mutual fund as they have already idolized them as Gurus. But if this is the case then why each year we see several underperforming funds in the line up. The investors who lose their money in such funds must have also followed the wordings of experts.

In short, mutual fund universe is an unpredictable environment and no one can time the market. Here are 5 things about equity funds that experts don’t want you to know.

5 Golden Rules to Know Before Investing in Equity Market

1. AUM Are Just Numbers, Ignore Them: A mutual fund having AUM in thousand crores will yield good returns is a common misconception among the investors. But the reality lies far away from the myth. An AUM is just a number that portrays the assets parked by the investors in the fund. Agreed that a top performing equity mutual fund will attract more investors and thereby, the AUM will increase but with great AUM comes great responsibilities for the fund manager to manage the fund. To beat this, an investor should always keep an eye on returns rather than AUM.
2. NFOs Will Earn Good Profit, Not Always True: Every year we see several investors in queue to grab the opportunity of buying a unit of NFO at an NAV of Rs. 10 which in turn lures them to buy more units at lesser price. However, it will take seconds to Google the list of several NFOs who are performing drastically. Moreover, if thought logically then what is the need to open a new equity mutual fund when the fund house already has schemes in every category. In simple terms, a scheme having vast AUM becomes hectic to manage and the management team delivers the same dish in a new packing.
3. Mutual Fund Is a One-Bet Game, Think Again: Investing in equity mutual fund is not a poker game and its high time that investors should get this fact in mind. The wealthy investors whom you admire haven’t won a lucky draw, it is the work of their sheer patience and right calls. A long term investment prospective is always required to achieve the financial goals. Also, no one can time the market...agreed, but an investor can always make a right call.
4. Diversification means Including More Schemes- False!: Financial experts always suggests to maintain a diversified portfolio but the question of how to construct a diversified portfolio remains unanswered many a times. Investors generally include all the top performing equity schemes in the portfolio and wait for the ‘returns’ shower to happen. But this is not the correct way, a powerful portfolio should include the schemes from different categories which are in line with your financial goal, investment horizon, and risk appetite.
5. Past Performance for Scheme Selection, A Big No: An exceptional past performance doesn’t guarantee high performance in the future. For instance, Sachin Tendulkar is one of the classiest batsman the world have even seen but he also got out several times without scoring a run. Applying the same logic here, a scheme can be top performing based on the past performance, but no one can predict what the future holds for the equity mutual fund. Furthermore, an investor should always look at the portfolio allocation of a mutual fund to get some hint about the future growth aspect of the scheme. If the fund has included some of the top stocks from different sectors then the scheme can help you in generating good profits.          

If you are reading this line then you must have known the important things to keep in mind before investing in equity mutual funds. Moreover, if you require any other assistance related to the mutual fund market then feel to reach us at- www.mysiponline.com or call us at- 9660032889.