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Myth

01

UTIMF ki Paathshala

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Man

Myth 1

"I am still young. I don't need to start saving so soon."

Agree

Agree

OR

Disagree

Disagree

Delay means substantial opportunity loss.

How did Mr. Young earn nearly double than Mr. Old by investing the same amount?
Simple: By starting early. Take a look at the following:

Difference between returns earned by Mr. Young and Mr. Old.

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As you can see, Young started investing at the age of 26 years. He invested `12,000 every year till the age of 50 years (grand total invested: `3,00,000). Old did not form a habit of investing till he was 36 years of age. He invested `12,000 per year till the age of 60 years (grand total invested: `3,00,000).

When both turned 60, Young's investment had grown to `33,67,148 and Old's investment had grown to `12,98,181 - Young now had nearly double of what Old had!

You can invest amounts early on without having to alter your lifestyle i.e. dining out, movies, travel, clothing, etc. A habit of investing early with smaller amounts can only lead to long-term wealth creation.

DON'T DELAY!

Start investing in your future today!

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Man

Myth 2

In the long run, we are all dead. "I want short term returns."

Agree

Agree

OR

Disagree

Disagree

Longer horizon moderates the risk of volatility.

Investment goals tied to the short-term, face great unpredictability. The longer your investment horizon, the smoother is the trend of returns, meaning that your probability of achieving an appropriate goal increases.

Increasing time horizon reduces instances of negative returns.

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Source: Verity Analytics

Note: One-year return is absolute while others are CAGR Returns, shown in percentage.

One-year return is highly unpredictable and on several occasions, the return can be negative. As we move forward with the time frame, the occurrences of negative returns reduce i.e. negative returns of 5-year investment is less than 1-year and 3 -year. Occurrences of negative returns for 10-year and 15-year horizon are reduced even further.

Investing long-term will improve predictability of achieving investment goals. Long-term returns are rarely negative.

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Man

Myth 3

"I can't give my hard-earned money to Fund Managers...I can manage my own portfolio."

Agree

Agree

OR

Disagree

Disagree

Direct investment in equities is too risky...

Mutual funds allow you to benefit from diversification and reduce risk of individual stocks, by spreading the investments among various companies belonging to different industries.

Equity Mutual Funds benefit from diversification

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The primary advantage of investing in mutual funds is the professional management of your money. By investing in mutual funds instead of owning individual stocks or bonds, your risk is spread out. By investing in a large basket of companies through mutual funds, loss in any particular company is offset by gains in others. Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.

A few individual scripts may give you higher returns but taming volatility is not possible. Matching the diversification and expertise of mutual funds is difficult.

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Man

Myth 4

Mutual Funds do not protect against inflation.

They do

They do

OR

They don't

They don't

Equity schemes beat inflation in the long run.

Equity Fund investments bring sizeable returns over the long-term, being driven by macro-economic factors. Equity scheme returns outshine fixed income investments like fixed deposits, Post Office Schemes, etc. and also stay ahead of inflation rate in the long run.

Equity Funds Composite - NAV Growth

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Source: The Association of Mutual Funds in India, Verity Analytics

Note: Largest Open Ended Diversified Equity Funds in existence for over 10 years are considered for Equity Funds composite

The trick to beating inflation is simple: the growth rate of your income must be higher or at least keep pace with the inflation rate. Inflation is variable and therefore, fixed return investments may not be helpful to beat inflation during high inflation period. The taxation factor also cuts down return. Long-term Equity Fund investments can however, maintain a rate higher than inflation. Typically, in a growing or developing economy like India, rate of inflation will be on the higher side but Equity Fund growth rate would be stronger, because of strong economic growth rate.

The potential of equity fund investments in a fast growing economy can far outpace the inflation rate.

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Man

Myth 5

Why shouldn't I put all my money in equity schemes?". Equity funds give great returns.

Agree

True

OR

Disagree

False

Always weigh investment decisions against risk.

Equity funds will offer higher returns but along with higher risk. It can cause greater pain in times of downturn. Merely, diversifying within an asset class may not help; to smoothen out risk, utilise different classes like debt, equity and bonds.

Propensity of equity funds to crash deeper in sell-offs.

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Source: Verity Analytics

Note: Balance schemes typically have allocation in 60:40 proportions between equity and debt.

Diversification does not only mean having different equity schemes in your portfolio. Diversification also means that assets should be allocated across different asset classes viz. equity and debt. This smoothens volatility and can assist better in achieving financial goals. In several cases, the relative safety given by a balanced scheme could offset the higher return given by an equity scheme.

Merely being exposed to high-risk equity funds may hurt your trading ideas. A partial exposure to debt smoothens out the risk & volatility.

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Man

Myth 6

"Market is so volatile. I should sell."

Agree

Agree

OR

Disagree

Disagree

Volatility can be a false alarm; hang on!

Volatile periods are depressing times, but do not sell. It pays to stay invested in a growing economy.

Periods of stock market volatility on the long-term graph.

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Source: BSE, GOI & Verity Analytics
Past performance may or may not be sustained in future.

The shaded areas are the periods of extreme volatility. Assume that you sell-off your investments during one of these periods. Compare the level of NAV during that period and on the latest date. You'll see that had you stayed invested, your investment value would eventually have been bigger today.

If you look at the GDP graph, India is the second fastest growing economy in the world. It is expected to grow at a rapid pace, which means that business will continue to grow and profits will rise. Staying invested in well-diversified and well-managed funds will be beneficial in the longer run.

Volatility is in the nature of the market. but eventually, the fundamental factors will influence markets and reward you.

India is the second fastest growing economy in the world. Fundamentals are positive for the long-term.

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Man

Myth 7

Mutual Funds are too risky. They do not assure returns.

Agree

Agree

OR

Disagree

Disagree

No one can guarantee returns.

No fund can guarantee returns, when it comes to equity. But you can choose the amount of risk to be taken. Mutual funds offer an array of options, across the risk-potential returns matrix.

Risk Returns Analysis

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Source: Verity Analytics

The nature of stock market is unpredictable, but in the long-term, uncertainties are ironed out and stock markets provide higher return. Avenues like PPF, NSE, Fixed Deposits provide safety and assured return but in the same period, mutual fund investments outperform their returns by a vast margin.

History reveals that equity-oriented funds outperform assured-return investments. Risk is high but with longer term, mutual fund returns are also higher.

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Man

Myth 8

"A scheme with a lower NAV is more attractive because I can get more units."

Agree

Agree

OR

Disagree

Disagree

Focus not on NAV but on composition of the portfolio.

While choosing a fund for investment, do not focus on the NAV figure. It matters little. What matters, is the quality of the portfolio i.e. scheme objective, asset allocation, Fund Manager/Fund House record etc. and your financial needs/goals.

High or low NAV will not affect the redemption value; what matters is the rate of growth.

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Source: Verity Analytics

Note: Entry/Exit Loads and taxes are ignored for comparison purpose.

Between two schemes, a scheme with latest inception date may have lower NAV but future returns do not depend on this factor. NAV figure merely decides how many units the investor will get for the amount that he/she has invested.

You can buy more units in a scheme with lower nav. However, it is the portfolio composition and your financial goals that you should concentrate on.

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Man

Myth 9

"In falling markets, I should stop SIP."

Agree

Agree

OR

Disagree

Disagree

Falling markets are best for accumulation strategy.

Falling markets are testing times for the most seasoned investors. But, think about it in this manner - "I can accumulate more Mutual Fund units when NAV falls" - and a weakening market could well turn-out to be a blessing in disguise.

Benefit from rupee cost averaging - NAV Growth

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Source: Verity Analytics

Graph 1 illustrates number of units purchased by investing `1000 per month on the 1st of every month in UTI Master Value Fund, since 1st September 2005. Price does not include entry load.

Graph 2 illustrates growth in investment amount. Past performance may or may not be sustained in future.

Arithmetic of lower NAV and higher number of SIP units. The nature of stock market is unpredictable but in the long-term, uncertainties are ironed out and stock markets provide higher return. Equity fund investments outperform returns, of most other investments by a vast margin in the long run.

Lower NAV means a good time to accumulate SIP units. Don't stop SIP even if markets are falling.

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Man

Myth 10

Metals was the best sector in 2004. "I will invest in metals this year."

Agree

Agree

OR

Disagree

Disagree

Diversify investments across sectors

Growth-driven sectors will give strong returns, in a growing economy like India. But, due to structural and global imbalances, volatility is always around the corner. Beware of being driven by recent gains of individual sectors. Diversification across a few sectors, is a better strategy to mitigate sector-specific risk and smoothen your returns' curve.

Performance of certain sectors and a diversified funds composite over 10 years.

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Source: Verity Analytics

Note: Composite index of diversified Equity Funds have performed better in five years out of ten.

A bonanza year for a sector can often be followed by a poor year (see graph). Diversification helps to mitigate sector-specific risk that can emerge due to structural changes possible in a developing nation like India. Diversification across a few growth-driven sectors can be a better ploy to smoothen the curve of returns.

Diversify investments across a few growth sectors to mitigate risk and gain optimum benefit out of a growing economy.

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Man

Myth 11

Fixed income investments are safe investments.

Agree

Agree

OR

Disagree

Disagree

Equity funds give vastly superior returns than fixed income.

It is a well-known notion, that fixed income or debt investments are safe. It is also a well-known fact, that equity investments outperform debt returns by a big margin in the long run. Debt investments will give limited fixed returns, while equities allow you to build wealth. So, isn't it safe enough to invest in equity funds in the long run and build wealth?

Trend of returns of debt and equity composite.

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Source: Verity Analytics

Note: 7 years rolling returns for Equity and Debt Funds composite are calculated considering schemes in existence of over 10 years.

For the long-term, safety of debt investments is a big opportunity lost, compared with the potential of capital gains from equity funds.

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Man

Myth 12

"Markets are lousy, I want to get out."

Agree

Agree

OR

Disagree

Disagree

Investing is not always about exciting market scenarios but about discipline.

Investors should learn to take advantage of unappealing scenarios.

Let's consider two perspectives.

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Source: BSE, UTI MF, Verity Analytics

Note: Scenario 1. Illustrates performance of Sensex since 1 September 1991 to 30 September 2011.

Scenario 2. Illustrates number of units purchased by investing `1000 per month on the 1st of every month in UTI Master Value Fund since 01 September 2005. Price does not include entry load.

Economic growth and strong fundamentals outweigh the short-term fluctuations. The recent economic growth illustrates the same. Always have a long-term view, while investing. Adopt a periodic investment style like SIPs to eliminate volatility.

Investing is not always about exciting market scenarios but about discipline and achieving certain life/family goals.

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Man

Myth 13

"I can't handle the pressure of short-term volatility of markets. I might lose my money."

Agree

Agree

OR

Disagree

Disagree

Investing small amounts at regular intervals proves to be very effective.

For people who cannot handle short-term volatility in markets, Systematic Investment Plan (SIP) is just what the experts recommend.

Lumpsum investment v/s Systematic Investment Plan.

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Source: BSE, Verity Analytics

The example is purely hypothetical and illustrates the returns of the BSE Sensex. In real life, one cannot invest directly in the BSE Sensex. It is also not an indicator of performance of any schemes of UTI MF. Annualised and compounded returns of the BSE Sensex based on 30 September 2011. In the above example, it is considered that a lumpsum amount of `40,000 has been invested at closing value of BSE Sensex as on 02 June 2008. SIP amount assumed of `1000 to be invested on the 1st day of every month in the closing value of BSE Sensex for 40 months.

There are ways to eliminate risks involved in the markets and minimise the possibility of losses, incurred due to short-term market volatility. One of the ways is to invest via Systematic Investment Plans (SIP). You get a two way benefit, while investing in SIPs. If the NAV of the scheme appreciates, then you will gain through capital appreciation. If the NAV of the scheme falls due to volatility in the markets, even then you gain as you can now buy more units of the scheme, with the same amount of money. This feature is called rupee-cost averaging. You also get the benefit of compounding, as the dividends from the scheme are reinvested into the market.

Investing does not have to be always lumpsum. Investing small amounts at regular intervals proves to be very effective.

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Man

Myth 14

"I want international exposure for my investments."

Very much

Very much

OR

Not at all

Not at all

When the whole world is investing in India, why do you want to go out?

Investors are flocking to put their money into emerging nations, especially India.

Comparison of the GDP growth of India vis-a-vis developed economies.

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Source: World Bank, SEBI

The above graph represents the annual growth rate of the GDP of USA, UK, Germany, Japan and India from FY2001-2002 to FY2009-2010 at market prices based on constant local currency. The graph inside represents the FII inflows into Indian stock markets from 2001 to 2010.

Developed nations have slow economic growth compared to emerging economies. High growth potential in the long-term is beneficial. Mutual funds are a preferable way for investment in emerging economies because of their diversification features.

Investing in a growing economy is always better than investing in an already-grown economy. So, there is no reason to invest outside india as the returns are quite compelling here.

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Man

Myth 15

"I want to focus on a few stocks to build wealth."

Agree

Agree

OR

Disagree

Disagree

To build wealth without losing your money…diversification is the way to go.

Very few people who have concentrated their wealth have succeeded, the key is to diversify in order to minimise risk.

Take a look at these case studies.

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Source: NSE

Note: The above graphs represent the daily closing prices of the corresponding scrips.

It is virtually impossible to time the market perfectly and consistently. You might face trouble if the strategy fails. Diversification brings stability to the portfolio and keeps the funds safe. Mutual funds are a preferable way to diversify.

To build wealth without losing your money diversification is the way to go.

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Man
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