Mutual fund investments are the best kind of investments that are on offer. There are many reasons for this to be considered to be true. You do not have to spend time each day to track the investments that you have made in the equity market. The mutual fund manager does that work. So that takes a lot of burden off your shoulders, but the fact remains that there are times when you have to track your mutual funds for their returns and also make appropriate adjustments. The benefit from investing in the mutual fund is that you save a lot of your time and the fund manager readjusts the portfolio and so you get a better return on your investment.
In spite of many of the advantages of mutual funds and all other funds, there are a lot of things that you have to keep in mind when you invest in mutual funds. There are many new fund offers that hit the financial market every now and then. All these are very attractive when you look at them in print, but you have to remember that they may not be that attractive when you really delve into the details of the funds.
Some of the important facts that you have to understand before you invest in the mutual fund are as follows.
1. Cheaper the NAV, better the fund:
This is absolutely wrong. The reason is that if the NAV of a particular mutual fund is very less, then that could mean that the fund has been offering a very less return on investment to the investor. The NAV of a mutual fund increases when the return for an investment is very high. This means that the fund manager has timed the market very well and has been able to make a lot of return on the money invested.
2. New fund offers will perform better:
This is another mistake that people usually make. There are a lot of people who think that the new fund offers are the ones that will make a great difference to their returns on investment. This is because since it is a new fund, it will perform better. This is absolutely wrong again. Unless the fund is well managed, there is no way that the fund will do better.
3. Diversification in many funds is better:
Yes, Diversification in more than a single fund is always better, but this does not mean that you have made the best investment. Though you should diversify in more than one fund, you should also remember that you should check the track record and history of the fund being managed to make a decent amount of money as returns on your investment.
4. Dividend paying funds are better:
The amount of money that a fund pays you as dividend may be returned to you or can be reinvested according to your preference, but you should remember that when the dividend is paid, the NAV of the fund decreases because of the money paid to you. If you reinvest, then the number of units you get will be more. This makes it very similar to the other funds.
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