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I CONFESS. I love freebies!
I would totally go for that slightly suspicious brand of washing powder if it comes with a bar of soap free. But that is where I would draw the line.
The problem begins when the supermarket enters the financial market!
Take this, for example: A particularly innovative distributor of financial products offers 1 litre of cooking oil free with every investment of Rs 1,000. And investing Rs 10,000 gets you five kilogrammes of Basmati rice.
Absurd? Well, that scheme caught on like wildfire!
The race is on to grab a share of the mystified investors' wallet! And mutual funds are a good place to start. The choices and technicalities they present are so confusing that people would rather leave the choice to 'trusted' distributors.
We go myth busting and tell you what not to believe.
Should I believe: New Fund Offers are the place to invest?
Verdict: No!
Why: NFOs are tempting. They cost only Rs 10. Your agent may suggest that you invest in every NFO that hits the market simply because it is cheaper than other older funds.
But cheap is not necessarily good!
In a mutual fund, what matters is how your scheme performs, not how much a unit costs. If you invest Rs 10,000 in an NFO, you get 1,000 units of Rs 10 each. If the scheme grows at 10 per cent in the first year, you will have Rs 11,000 at the end of that year.
Had you invested Rs 10,000 in an existing scheme at a price (called Net Asset Value or NAV), of Rs 50 per unit, you would get 200 units. But for all you know, that scheme could perform much better and give you a return of 15 per cent.
So your investment would grow to Rs 11,500 at the end of the year.
The number of units does not matter.
