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Unsure? Stay away from capital markets

THE MUTUAL fund industry has come out with a number of schemes such as Monthly Income Plans (MIPs) or mid cap funds among others in the past. Here are some ways to avoid falling in the trap of fund advisors, who just wants to gamble with your hard-earned your money.

india Updated: Jun 18, 2006 00:04 IST

THE MUTUAL fund industry has come out with a number of schemes such as Monthly Income Plans (MIPs) or mid cap funds among others in the past. Here are some ways to avoid falling in the trap of fund advisors, who just wants to gamble with your hard-earned your money.

Always remember that not all Rs 10 Net Asset Value (NAV) fund offerings are the surest way to bigger returns in future. A  good advisor would recommend a fund only if the markets in the longer term could bring out expected returns for the investments made by the small investor.

There are ploys adopted by certain funds to offer rebate on ‘commissions’ earned, which is ploughed back to investors. In simple terms, the investor is ‘rewarded’ for choosing a mutual fund for investment. Most times investors fall into the “commission” trap and choose a laggard among mutual funds on the theory of accepting a rebate” on commissions offered by a mutual fund advisor.

Always go for a mutual fund advisor who would recommend the right investment
avenues at the right time for investment.

Most investors are hoodwinked into accepting a Systematic Investment Plan (SIP) with a lump sum investment with the promise of higher returns. The very word “systematic” points towards making investments gradually in the market to reap its full benefits. An advisor trying to make an investor pay a lump sum amount in the SIP plan should be avoided.

The best investment advisor is the one who creates a portfolio for the investor, based on his needs and risk profile. The moral of the story is that if you have doubts about any fund advice, ask the advisor 50 times before handing over the cheque. This could only save you from future heartburn.

One last word of caution—If you are just not sure about your investment plans, defer making any investments in capital market related instruments and put the money safely in bank fixed deposits or post office savings account till you are certain about investing money in the stock market.