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Answers to the Mutual Funds basics quiz
Correct answer : Equities, Debt, Gold, International Equity
Why? : Mutual funds allow you to invest in Equities, Debt, Gold, International Equity. They don’t allow you to invest in Insurance, and they’re certainly not just for Equities or Debt.
Correct answer : A Portfolio Management Service
Why? : A Portfolio Management Service(PMS for short) is most similar to a mutual fund among the answers provided. And there is no such thing as an Equity-aggressive LIC.
Correct answer : Direct plan of an Index mutual fund
Why? : Direct plans of an index funds have the least expense ratios. Direct plans are middleman-free, and index-funds don’t require active management.
Correct answer : Open-ended mutual funds
Why? : Closed-ended funds and NFOs are to be completely avoided by an mutual fund investor. Even seasoned investors can completely avoid such offerings.
Correct answer : An AMC website
Why? : An AMC Website is the only option from above through which you could invest in commission-free Direct mutual funds. Since direct plans of mutual funds do not have middlemen commissions, they generate higher returns for investors.
Correct answer : A fee-only financial advisor
Why? : A fee-only financial advisor charges you a fixed upfront free, and only works with direct mutual funds and commission-free products. The wealth lost of commissions is extremely high. Middlemen of any sorts hence need to be avoided.
Correct answer : Once every couple of years
Why? : Checking up on your mutual funds once every couple of years is more than plenty. Checking every day, every week or even every month makes little sense because equities are long term investments. They also aren’t supposed to go up month after month like a fixed deposit. Once every 10 years is far too long to not check up on your MF.
Correct answer : A Debt-aggressive mutual fund
Why? : An equity aggressive mutual fund does the opposite. And there is no such category as a ‘capital-guarantee’ mutual fund.
Correct answer : ELSS
Why? : Every answer other than ELSS is made up. And ELSS is the right answer. It’s short for Equity Linked Saving Scheme. You can read a short relevant write-up on ELSS funds here.
Correct answer : None
Why? : No mutual fund should be blindly invested into. Even if it comes highly recommended. Why? Because your needs might not be the same as someone else’s. Risk and reward are always linked. A high return mutual fund often comes with high risks. A mutual fund which aims to protects your money, is designed to provides low returns.
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