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Increase Your Health Insurance Cover

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Increase Your Health Insurance Cover

Now people are well aware of the need of health insurance in our country. But even if you are among the one who are insured, will it be sufficient enough when you actually need it? Suppose you have a 5 lakh insurance cover taken few years back. But looking at how the health insurance cost is rising, it might not be enough in next few years. So suppose if one wants to increase the coverage to Rs20 lakhs from the existing cover of Rs5 lakhs, there are a few options through which one can either upgrade their existing policy or can go for a top-up plan. What should you go for?
Enhance sum insured or a top-up policy
Increasing an existing cover means, you increase the sum insured of your health insurance policy. Increasing a regular cover gives protection for the entire sum insured. Top-up plans, on the other hand, covers you only after a certain amount, called deductible, has been crossed. And this is the reason they are much cheaper when buying a regular health insurance plan for the same sum insured. It is important to note that top up plans work on per single hospitalization basis it helps when a single claim amount is above threshold limit. Super top up plans are also available in the market which considers aggregate of the claims per policy year and not a single hospitalization. These policies are available in individual and floater sum insured options. Nikhil Apte CPO, Royal Sundaram General Insurance - "It would be advisable for the customer to not opt for the top-up plan which has deductible on per claim basis as the probability of claim cost exceeding deductible is low. However, this option will work or gets triggered in case of chronic illnesses"
Difference of Premiums
Top up plans have comparatively lower premiums due to the deductible threshold which needs to be paid either by a regular health insurance policy or burned out of your pocket. For eg, if one has a base plan of Rs.3 lacs and he opts for a top-up plan with Rs.3lacs as deductible and sum-insured of Rs.10lacs, then this plan will be activated only when the single claim is more than Rs.3lacs.
Best Option to go for
If one is just looking for an additional sum insured, then a top-up plan is one of the cost-effective options. If you are looking for additional benefits such as overseas treatment and maternity benefit along with enhanced sum insured, then increase the cover of an existing policy will be a better option. Rajiv Kumar, MD & CEO, Universal Sompo General Insurance- "Annual medical inflation of 6 - 7% is a serious concern and it should be kept in mind while fixing the sum insured. Accordingly top up plans could be chosen and purchased to be adequately covered in case of adverse medical conditions in future." By increasing the sum insured of existing policy you can also increase the sub-limits. For example some policies offer sub-limits on room rents and bed charges at 1% on the sum insured. 

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Health Insurance Claim Could Be Denied

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health insurance policyholder pays his annual premiums diligently with the hope that in case of hospitalisation, the insurance company will bear the costs up to the limit of the policy's sum insured amount. As part of the contract, the insurance company is liable to pay the claim to the hospital on behalf of the insured. However, there can be times where the insurer will not settle your claim. Read on to find out why this can happen.

Know your claims
The insurer processes every claim received from two angles - cashless or reimbursement claims, and on the basis of network or non-network hospitals.
In a cashless claim, the policyholder is not expected to pay the hospital bills as the insurer reimburses the same. In a reimbursement claim, the policyholder has to pay the hospital bills and then it is reimbursed by the insurer.
Some hospitals enter into an agreement with insurers to offer cashless claims for every hospitalisation. Such hospitals are part of the list of network or empanelled hospitals. Those that are not on such a list are called non-network hospitals and claims are processed on a reimbursement basis and not on a cashless basis.
Of late, hospitals and insurers have started entering into agreements even for certain treatments, procedures and operations like knee replacement. Such an arrangement is known as preferred network hospitals or agreed network hospitals and the claim is cashless.
In addition, insurers may even have a negative list. Insurers prefer not to settle claims from these hospitals.

When a cashless claim can be denied
As a policyholder, one should be aware that even a cashless facility can be denied in a network hospital. Such an incident may arise if the information sent by the hospital is insufficient or if the ailment is not covered under the policy or if the request for pre-authorisation is not sent in time. "In a cashless situation, the hospital might not be able to give all the details required for the insurer to arrive at a decision. When an insured approaches a hospital with some symptoms, the treating doctor might not know the specific diagnosis and consequently the insurer might not be able to decide on the admissibility," explains Parag Ved, executive vice president, consumer lines, TATA AIG General Insurance.
But, even if the cashless facility is denied, one can subsequently, on discharge from the hospital, submit the claim for reimbursement.
At times, there could be a medical emergency and one may have to get oneself or a family member admitted to the nearest hospital which may turn out to be a non-network hospital. "If the policyholder is seeking treatment at a hospital which is not emplaned with the insurer, the request for cashless claim will be denied," says Anurag Rastogi, chief actuary and head - retail underwriting and claims, HDFC ERGO General Insurance Company. In such a case, the claim will only be processed on re-imbursement basis.

Once admitted in hospital
Hospitalisation can either be a planned one or it can be a medical emergency. Under either of these circumstances it's important that the insurer is intimated immediately upon hospitalisation by submitting the pre-authorisation form. In a planned hospitalisation, intimate the insurer early on about the forthcoming claim.
And if it is an emergency hospitalisation, the claim intimation must be sent to the insurance company within 24 hours. "In planned admissions, always take the pre-authorisation from the insurer/third-party agent (TPA) in advance before admission. This will ensure that there would be no hassles at the time of admission for doing the necessary paperwork," says Ved. Some of the information other than basic details that one may share with the insurer will include policy number, name of the insured person who is hospitalised, nature of illness or injury, date and time in case of accident.
To keep the cashless claims settlement smooth, ensure that the pre-authorisation form has been filled up by the treating doctor with all the information about the treatment and the expected cost of treatment and is sent to the insurer.

After leaving the hospital
Once the patient is discharged from the hospital, in case of a cashless claim, the insurer settles the bill. However, in case of a claim on reimbursement, the insured has to pay all hospital bills and collect the original documents of the treatment undergone and expenses incurred. Along with some other documents, they have to be sent to the insurer to get them reimbursed.
Some of the indicative list of documents that needs to be sent includes
•Filled up claim form along with the original discharge summary,
• Doctor's consultation reports, hospitalisation and other medical bills,
• Receipts in original,
• Investigation reports, self-declaration or an FIR in case of accident cases.
It's better to get the list of required documents from the insurer as each one would have its own specific list. The insurer may ask for additional documents, so follow up with them to ensure that they have received all required documents.
If the hospital is not registered, you will need to get information such as the number of beds, availability of doctors and nurses round the clock and its registration number on a paper with the hospital's letterhead on it. In case of non-network hospital, you may have to get the hospital and doctor's registration number in hospital letterhead and get the same signed and stamped by the hospital.

The claim settlement timeline
According to the Insurance Regulatory and Development Authority of India (IRDAI) guidelines, an insurer has to settle a claim within 30 days from the date of receipt of the last necessary document. In the case of delay in the payment of a claim, the insurer is liable to pay interest from the date of receipt of last necessary document to the date of payment of claim at a rate 2 percent above the bank rate.
However, the insurer may initiate an investigation before paying the claim. Such an investigation has to be initiated at the earliest, i.e., not later than 30 days from the date of receipt of last necessary document. In such cases, the insurer has to settle the claim within 45 days from the date of receipt of the final document. If they delay it beyond 45 days, the insurance company will have to pay the policyholder an interest at a rate of 2 percent above the bank rate from the date of receipt of last necessary document to the date of payment of claim.

What you should do
In order to keep the claim settlement process smooth, it is not enough to just disclose all material health information to the insurer at the time of buying the policy but even intimating the insurer with the requisite information at the time of admission in a hospital plays an important role. So if you or a family member is getting admitted in a hospital, make sure you have all the required paperwork handy and know the claims settlement process of the insurer. If it so happens that it is not a network hospital or if the particular procedure is not covered, you will have to pay up the hospital bills upfront and get the amount reimbursed later.

Source : ET 

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Best SIP Mutual Funds To Invest In Oct 2017

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Best mutual funds to invest in Oct 2017 

Many new investors are flocking to mutual funds these days. However, many of them hit the first hurdle immediately: how to put together a few schemes or create a mutual fund portfolio. This is because many investors believe that creating a mutual fund portfolio involves several complicated steps. To begin with, an investor needs to shortlist a few schemes with a consistent long-term performance record. Then s/he should pick the ones that are in line with the risk profile and investment objectives. Then the biggest problem: how to fix the composition of the portfolio. The task doesn't end here. Then they also need to monitor and review the performance of the portfolio at regular intervals and take remedial steps if needed. Mutual Funds is here to help you. We have been recommending equity mutual fund portfolios for SIPs every month since October 2016. The portfolios have been created for three different individual risk profiles: conservative, moderate and aggressive. We have also considered three SIP baskets - between Rs 2,000-5,000, between Rs 5,000-10,000 and above Rs 10,000 - while creating the portfolio.
We monitor the portfiolio on a regular basis and recommend the required changes whenever we think is necessary. We are happy to tell you that there is no change in the portfolio this month. You can see the SIP portfolios below.
conservative october 2017

moderate october 2017

agressive october 2017

We have only considered equity diversified and equity-oriented balanced funds for recommendation. We have also assumed that the investor is investing with an investment horizon of five years. 
Keep looking for our monthly review of the portfolio in the first week of every month. 
1. Mean rolling returns : rolled daily for the last three years. 

2. Consistency in the last three years : The three-year period is divided into smaller time periods each with a progressing weighting. 

3. Downside risk : We have considered only the negative returns given by the mutual fund scheme for this. X =Returns below zero Y = Sum of all squares of X Z = Y/number of days taken for computing the ratio Downside risk = Square root of Z 

4. Outperformance : It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market. 
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate} 

5. Asset size : For equity diversified funds, the threshold asset size is Rs 100 crore, and Rs 50 crore for balanced funds.
We have also conducted a back testing of our model portfolios. These returns are forward returns from the base date.

(Disclaimer: past performance is no guarantee for future performance.)

Source : ET 

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Income Tax Rules on Mutual Fund

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Points You Should Read About Income Tax Rules on Mutual Fund Gains

It is projected that people are investing nearly Rs. 5,000 crore every month through SIPs.
In July, the asset under management of Indian mutual fund industry touched all time high of Rs.20 lakh crore. This is due to the strong inflows into both equity segments and debt. Retailers are investing record amount into mutual funds through SIPs. It is projected that investors are putting in an estimated figure of Rs.5000 crores every month through SIPs. Systematic Investment Plan or SIP is an investment plan offered by mutual funds, wherein one could invest a set amount in a mutual fund scheme at pre-defined intervals.
Below points will help you understand how much income tax you have to pay on gains from mutual fund:
1) For tax purposes, a mutual fund scheme that invests 65 per cent or more of its portfolio in equities or equity-related instruments, is considered equity funds.
2) Apart from equity diversified funds, arbitrage funds are also considered equity funds. Arbitrage funds invest in equity and derivatives such as futures and options while equity income funds invest in a mix of equity, equity derivatives and debt. If a balanced fund invests minimum 65 per cent in equities, it is considered an equity fund for tax purpose.
3) Profit held for more than a period of 12 months, from equity mutual fund units whether SIP or lumpsum is considered as a long term capital gain. As per the policy, there is no tax is applicable on the long-term capital gains from equity funds.
4) For the duration less than 12 months, tax on short-term capital gains is applicable at 15% on the gains from equity funds.
5) Many investors opt for dividend option while investing in equity mutual funds. Dividend income from equity mutual funds is tax-free, irrespective of when you receive it.
6) Investments in debt funds are considered long term only if they are held for more than three years.
7) Currently, the long-term capital gain on debt funds is taxed at the rate of 20 per cent. However, investors get the benefit of indexation on their original debt fund investment. This indicates that the adjustment of original investment is done in accordance for the price if inflation and taxes. Since the original cost of investment goes up after factoring in inflation, long term capital gains tax comes to negligible levels.
8) But before three years if the debt mutual fund investments are redeemed or sold, whatever short-term gains you have are taxed as per your tax slabs.
9) Income from debt funds also come in the form of dividends. Any dividend declared by a debt mutual fund is exempt from tax in the hands of investors.
10) However, mutual fund houses pay dividend distribution tax @ rate of 28.84 per cent (including surcharge and cess) before handing out the dividends to investors.
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Now policyholders can share a video to avail motor insurance claims

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Claim settlement in motor insurance just got easier and faster. ICICI Lombard General Insurance has introduced a new feature in its mobile app ‘Insure’ called ‘InstaSpect’ to expedite the claim settlement process.
Through this feature, policyholders can share a video of car damage directly to the company through the mobile app.
Speaking at the launch of the feature, Sanjeev Mantri, Executive Director, ICICI Lombard General Insurance says, “Through this new age motor insurance claims feature on our app, we have made the claims approval process far more efficient and hassle free for the benefit of our customer.”
Sanjay Datta, Chief Underwriting & Claims, ICICI Lombard General Insurance says that this initiative will help policyholders reduce turnaround time in settling claims.
Once policyholders open the app, the company official will guide them how to take videos of damaged parts. However, the guidance of the claims manager is only available during the working hours.  The manager will help the policyholders locate the nearest workshop. The company will take the car to the nearest workshop if the damage is severe.
Among other key features are on-the-spot vehicle inspection, reduced turnaround time, clarity on coverage and deductions, transparency, assistance with vehicle pick-up services, claim tracking and faster claim settlement.
Currently, the feature is applicable on personal vehicles of claim of up to Rs.50,000.

Best Debt Mutual Funds in India – 2017

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Best Debt Mutual Funds in India – Details & Comparison 

Debt Mutual Funds offer several benefits. But most of the small and retail investors know little about them and prefer to invest in Fixed Deposits or Recurring Deposits.
Debt Funds can give better returns than your Savings Bank Account & Bank deposits. Safety of capital is almost the same with both the options (Debt MFs & FDs). FDs may offer you assured returns but Debt funds can offer you higher post-tax returns.

If you have any financial goal(s) which is less than 5 years away, which can be met with 8% to 10%, rate of return (or) when you are not comfortable with high volatility (risk) then you can surely consider investing in Debt Mutual Funds.
The returns from Debt funds are mainly dependent on the ‘interest rate’ scenario that is prevailing in the economy. If interest rates are in downward trend, most of the long-term or dynamic debt mutual funds can give better returns than bank fixed deposits. RBI may not be done with ‘Interest Rate Cuts‘. We may see further rate cuts in the future based on the Inflation and Macro-economic data.
Some of the debt mutual funds especially Dynamic bond funds, Gilt funds and Long-term debt funds have given better returns than bank Fixed Deposits over the last 1 to 2 year period.
In this post, let us look at some of the top performing and best Debt Mutual Funds that you can consider for your short or medium term goals.

Methodology to shortlist Top rated Debt Mutual Funds
I have judiciously followed the below points to select the best Debt mutual funds;
  • Funds are shortlisted based on the past performances (Returns).
  • Selection among the top rated 5 to 6 AMCs with a proven track record in Debt Funds segment.
  • Age of the funds.
  • Quantum of AUM (Assets Under Management)
  • Expense Ratio (What is Expense ratio? Expense ratio shows the amount that mutual funds charge for managing the investors’ money)
  • Exit Load.
  • Risk – Reward profile.
  • Various Risk / volatility related Ratios.
  • Based on the data available on CRISIL, Morningstar, Moneycontrol & Valueresearchonline portals.
  • The current investment portfolios of the funds.
  • The credit quality, interest rate sensitivity, modified duration & average maturity of the Funds’ portfolios have been given due importance. (If you are investing for short-term, ideally you have to pick funds which have limited/low sensitivity to interest rates. At the same time, if you are investing for medium to long-term duration, you may pick funds which have moderate to extensive sensitivity to interest rates. Funds which have high credit quality w.r.t their portfolios should be given high importance.)
  • I have tried to identify top performing Debt mutual funds based on the Fund Categories like Liquid Debt Funds, Short-Term Debt Funds, Dynamic Bond Funds, Gilt Funds, Monthly Income Plans etc.,

Top & Best Debt Mutual Funds in India for 2017

Below are some of the top performing and highly rated category-wise debt mutual funds;

Best Liquid Debt Funds 

Liquid funds invest in highly liquid money market instruments that provide easy liquidity. The period of investment in these funds could be as short as a dayAxis Liquid fund, HDFC Liquid Fund and Birla Sunlife Cash Plus funds are some of the top performing Liquid funds. The average liquid fund category returns in the last 3 months & 1 year are, 1.5% and 6.8% respectively. Franklin India’s Treasury Management Fund & ICICI Pru Liquid plan can also be considered for very short-term goals. Liquid funds are also best suited for saving a portion of your Emergency Fund.
If you want to park your surplus cash for very short-periods say 1 to 3 months, opt for these funds. Do not invest in Liquid Funds for a longer period as these offer low single-digit returns at best. Do note that these funds may or may not outperform your savings bank Account interest rate. (I had shortlisted same funds last year too.)

Best Ultra-Short Term Debt Mutual Funds

The Ultra Short-term debt funds are also known as Liquid plus funds or Cash / Treasury Management Funds. They generally invest in very short term debt securities with a small portion in longer term debt securities.
I had picked DWS Ultra Short Term Fund, Franklin Ultra Short Bond Fund & Axis Banking Debt Fund last year. This year, I am replacing the DWS & Franklin funds with L&T Ultra Short Term Fund & IDFC Banking Fund. The above funds’ portfolios are of very high credit quality and have low sensitivity to interest rates.
The average category returns generated in the last 3 months and 1 year are; 2% & 7.9% respectively. If you have surplus money which needs to be invested for say 3 to 12 months, you can consider investing in these funds.

Best Short-Term Debt MFs

Funds investing in slightly longer duration debt securities than Ultra short term funds are referred to as Short term funds. These funds are also referred to as Short-Term Credit Opportunities funds.
I had short-listed Birla Sunlife Short-term fund and HDFC Short Term fund last year. This year, I am replacing the HDFC Short Term Fund with Axis Short term fund and also including Franklin Low Duration Fund & L&T Short Term opportunities Fund. The above funds’ portfolios are of very high credit quality and have low sensitivity to interest rates. (HDFC Short Term Fund’s portfolio has been rated as ‘medium’ in terms of credit quality.)
The average fund category returns over the last 1 and 3 years are; 8.8% & 7.9% respectively. If you have surplus money which needs to be invested for say 6 to 18 months, you can consider investing in these funds.

Top & Best Dynamic Debt Funds

They invest a major portion in various debt instruments such as bonds, corporate debentures, government securities and money market instruments of various maturities and issuers. Dynamic Bond Funds invest in debt securities of different maturity profiles. These funds are actively managed and the portfolio varies dynamically according to the interest rate view of the fund managers.
During last year’s review on Debt Funds, I had selected TATA Dynamic bond & HDFC High Interest Fund under Dynamic Bond Funds category. I am continuing with the same funds and have also included Birla Sun life Dynamic Bond Fund & ICICI Pru Dynamic Bond Fund to the tracking list.
The average returns generated by the funds which are in Dynamic & Long-term income bond funds category during last 1 and 3 years are; 9.2% & 8.8% respectively.
These funds are suitable for investors who are willing to take a relatively higher risk and have longer investment horizon (say 1 to 5 years). Invest in a Dynamic Income fund if you want to gain from both rising and falling interest rate scenarios. But, dynamic funds can have high interest rate risk associated with it.

Best Gilt Funds

Gilt Funds invest in government securities of medium and long term maturities issued by central and state governments.
During last year’s review on Debt Funds, I had selected SBI Magnum Gilt Fund, IDFC’s G-Sec Fund and & L&T Gilt funds under Gilt Funds-Intermediate to Long-Term category. I am continuing with SBI and L&T Funds, but replacing IDFC fund with HDFC Gilt Fund – Long Term plan.
The average category returns for the last 1, 3 and 5 year are; 10.08%, 9.4% and 7.8% respectively. You can consider Gilt funds in a falling interest rate scenario.

Best Monthly Income Plans / Hybrid – Debt Oriented Plans

These funds invest in a mix of Debt and Equity in the proportions of say 80:20 or 70:30 or other proportions of similar kind. The objective of these funds is to provide enhanced regular returns to risk-averse investors by taking small positions in equity assets.

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Mutual Fund Facts & Myths

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Mutual Fund Facts & Myths 

Are you one of those investors who are still away from mutual funds investments because you do not have enough understanding about it or have lot so myths about them?
Every day we get constant enquiries from several of our readers who want to invest in mutual funds and often they have myths, which make us wonder about those myths.
So in this post I have listed down 33 various myths related to mutual funds and SIP in general. So if you are totally new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.
So let’s start…

Myth #1 – SIP is name of an investment product

A lot of people think that “SIP” is name of some investment product other than mutual fund. So they say – “I want to invest in SIP”. However SIP means systematic investment plan, which just means way to regularly invest only into mutual funds. In this a pre-fixed amount is automatically deducted from your account and gets invest in mutual funds on a pre-defined date.
For example, if you are doing a SIP of Rs 5,000 in ICICI pru Discovery mutual fund on 10th of every month, then on 10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.

Myth #2 – I can’t stop SIP in between once I start it

Another myth which stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.
A lot of people do not want to give any PROMISE of regular payment. However the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!

Myth #3 – All the money from ELSS can be withdrawn after 3 yrs if one is doing SIP

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However that is not true. Each investment in ELSS is locked for 36 months from the date of investments. Which means that the first SIP which goes in March 2017, will be free of lock in only in Apr, 2020.
SIP in ELSS mutual funds are locked in for 3 yrs
The same is the case with the installment which goes in Apr 2017 (will be free on May, 2020)

Myth #4 – Lower NAV is cheaper than higher NAV

Most of the mutual funds investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has potential to grow faster than a stock with Rs 10000 stock value.
But in case of mutual funds NAV has no significance. It’s ZERO !
Because your mutual funds appreciation has everything to do with the appreciation in NAV value in percentage terms and not absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to Rs 20 lacs.
However if the NAV was Rs 10,000 per unit, still the effect would be same for you. The NAV would have increased to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.
So stop thinking that a fund is better (especially NFO’s) just because its NAV is lower.

Myth #5 – Dividend in mutual funds is better than Growth option

When you choose a mutual fund to invest, you have to choose between Dividend and Growth option. Now a lot of investors think that dividend option is better because they are getting “extra dividend” . However it’s not true.
Dividends are not extra ! , The NAV comes down by that margin after the dividend is paid, on top of it , if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of investor. However in case of growth option, the money remains in the fund itself.
Difference between growth and dividend mutual funds
For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10
  • Now in case of dividend option , Rs 10 will be paid to investor and NAV will come down to Rs 90.
  • However in case of Growth option, nothing is paid to investor , but the NAV is Rs 100.

Myth #6 – Mutual funds means Stock Market

One of the most common myths is that mutual funds are highly risky because they invest in stocks. However this is half true. Only equity mutual funds invest in stocks and are risky (infact volatile is the right word, not risky)
Various types of mutual funds
There are other categories of mutual funds called as debt mutual funds, which do not invest in equities. They invest in bonds, govt securities and other secured investments. While debt funds have their own risks and even their returns are not 100% stable, still debt funds are highly stable when it comes to returns and often provide better tax adjusted returns then most of the bank fixed deposits.

Myth #7 – You have to invest big amounts in mutual funds

Many small investors stay away from mutual funds and stick to recurring deposits and other products because they think that mutual funds are for big investors and one has to invest big money in it. However you can start monthly investment of even Rs 1,000 per month in most of the funds. If you want to invest on onetime basis, the limit is Rs 5,000 .
So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual funds SIP.

Myth #8 – Mutual funds are always for long term

Mutual funds are marketing as long term investments most of the time. However it’s not always the case. There are mutual funds called as liquid mutual funds and even short term debt funds which can be used for short term investment horizon like 6 months or 2 yrs.
This article from Economic times talks about some of these funds
short term mutual funds
Only in case of equity mutual funds, it’s suggested that one should invest from a long term perspective to reap the maximum benefits.

Myth #9 – Mutual funds offer guaranteed returns

No, Not always.
Actually never !
Mutual funds never offer a guaranteed return like a fixed deposit. This is one reason why many investors who are totally in love with “assurity” shy away from investing in mutual funds.
Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%
So the returns are not guaranteed, but highly probably within a range depending on its category.
Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return within a range increases.

Myth #10 – I will lose my money if mutual funds company goes bankrupt

This is common thinking, but not true
Mutual funds are highly secured in terms of structure. The way it’s designed and regulated by SEBI, it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual funds units does not lie with AMC (it just takes decision of buying and selling). Units and all the money lies with custodian and highly secure.
Structure of mutual funds in India
ELSS fund some years back, but is now replaced by many others.
Here is a study by Yahoo Finance on this topic with respect to funds in US, which tells that around 92% top performers do not remain top performers after two years.

Myth #12 – More mutual funds means Diversification

Diversification is an abused word, at least in mutual funds.
Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies etc.
When you add another mutual funds, most of the stocks might be same and also in same proportion, giving you very little extra diversification. When you add 3rd fund and 4th fund, almost no diversification happens. Below is the portfolio of one mutual fund and you can see how much they have diversified already.
This is one reason why it’s of no use to invest in 10-20 mutual funds of same category. 2-4 funds of a similar category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.

Myth #13 – I need demat account to invest in mutual funds

No , it was never the case.
A lot of people think that unless they have demat account, they can’t invest in mutual funds. You can invest in mutual funds from your demat provider also , but it’s not mandatory.
So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a demat account and the units you get sits in your demat account.
So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.

Myth #14 – I can start SIP and forget it for long term

A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit back and relax for next 10-20 yrs. This is not suggested.
Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do not over do it and start looking at weekly and monthly returns, but do that in 1-2 yrs.

Myth #15 – You can’t save tax under 80C in mutual funds

Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.

Myth #16 – SIP can be done only on monthly basis

No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on quarterly basis or weekly basis, even that can be done.
However note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.

Myth #17 – Mutual funds investments are complicated

While investing in mutual funds is definitely as simple as creating a fixed deposit. But it’s not too complicated. You need to do one time documentation to start with and once it’s done, After that you can buy/redeem mutual funds online.
One place where you might feel complication is while choosing the funds out of the big pool, but with your own research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.
Here is a good mutual funds tutorial for beginners by Deepak Shenoy

Myth #18 – I can’t add more lump sum amount in my fund where I do SIP

A lot of investors feel that if they have started an SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.
When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

Myth #19 – You need documentation every time you want to invest in mutual funds

Again a big myth.
Once you are done with the first time documentation, after that every time you want to invest and redeem or switch, you can do it online. The documentation comes into picture only when you want to do changes like your email id, phone or address etc.

Myth #20 – Mutual Funds are not for retired investors

This is entirely false.
There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard earned money in debt funds and keep them secure while it’s growing at a decent return. Once can choose an option for monthly dividend and get an income.
One can also SWP from a fund, and withdraw a fixed amount each month. One can invest in a debt oriented mutual funds, which can have some equity component for some return kick!.
We have helped many clients to plan for their parents retirement money deployment.

Myth #21 – I can’t invest in mutual funds because I need high liquidity

Again a myth.
Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can redeem in 24 hours.

Myth #22 – Mutual funds are not that famous among investors

This may be a news to many, but Mutual funds industry will overtake Deposits in Banks very soon (may be a decade). Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has doubled in last 4 yrs, and set to grow very fast in the next decade.
In US, mutual funds are already several times bigger than Fixed deposits and its going to happen in India too over long term. So if you still think that mutual funds are some alien concept, then you are wrong. It’s very popular now in India and one of the standard investments products.

Myth #23 – Mutual fund redemption needs permission of broker or advisor

Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either installing the app of the fund house or through the portal where you have access to.
In worst case, you can anytime go to fund house office or CAMS/KARVY office and apply for redemption. This does not need any approval from anyone.

Myth #24 – I can’t skip an SIP payment once started

A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?
If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.
I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency

Myth #25 – I should stop my SIP when markets are down

Unless you are expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s . Just let them run in all kind of markets and focus on your long term goals.
Most of the investors make this mistake that they stop their SIP’s when markets tank. Infact, this is the best time when you should accumulate more Mutual funds units in your portfolio, so that when markets are up, you will reap the benefits.

Myth #26 – TDS is applicable when mutual funds are sold and redeemed

Mutual funds are not like Fixed Deposits or Recurring deposits.
When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account and then you need to figure out the tax amount and pay it later.
However there is no exception to this. In case of NRI’s, if they redeem their debt funds, then TDS is applicable.

Myth #27 – My money will be locked in mutual funds like other products

Many investors think that in mutual funds their money is locked for a specific period. in case of mutual funds, most of the funds are open ended funds, which means that you can invest anytime and redeem anytime.
There is no lock in except in ELSS funds (which comes under 80C) and close ended funds (which specifically tell you the duration for lock in)

Myth #28 – SIP should not be started when stock markets are very high

Yes, this is actually not a myth, but truth.
But only if you know that stock markets are high ! . If you are very sure you can figure that out then Yes, it’s better to wait for markets to tank down, and then start SIP. But 95% of the people don’t have time and energy and even expertise to read these signals.
So that’s the reason, why you should not think much when you are starting the SIP. Start your SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount

Myth #29 – SIP is always better than Lump sum investments

None of them are better than the other.
SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s however are more suitable for a common man as it’s a monthly commitment and averages the risk of market’s volatility.
Here is a good discussion on SIP vs Lump sum Investments by Monika Halan and Vivek Law in a show called Smart Money

Myth #30 – I can’t switch from one mutual fund to another fund

Many people do not know that it’s possible to move from one fund to another fund across the same fund house. You don’t need to sell the fund, get the money in your account and then again invest in another fund of the same fund house.
So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.

Myth #31 – Mutual funds of bigger and trusted brands are always better

Do you know that LIC also has mutual funds business?
However LIC mutual funds are one of the worst performing funds across the whole MF industry. LIC mutual funds is not same as LIC insurance.
In the same way, SBI mutual funds should not be confused with SBI bank. A lot of first time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or HDFC.
Not that mutual funds is a different business, and you need asset management expertise. A small fund house like Motilal Oswal or even Quantum or PPFAS have high quality funds and should be explored.

Myth #32 – I can’t partially withdraw from mutual funds

Yes you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also)

Myth #33 – Only humans can invest in mutual funds

Even companies and partnership’s can invest in mutual funds. It’s not limited to just humans. So if you are business owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a single click.
Let us know if you have any more myths or queries related to mutual funds or SIP.

Source: Jagoinvestor

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