One of the biggest challenges facing mutual fund investors is the hidden fees they have to pay for owning funds that were probably advised by brokers. We already know that the Obama administration is said to be taking measures to “crack down” on these brokers who are reluctant to put the best interest of middle class families first. The firms are said to be selling investments with “high costs and low returns” rather than sharing quality investment advice.

While that is something the Obama administration is seriously looking into, investors for their part also need to let go of the myths surrounding mutual fund investments. We will look into 5 mutual fund myths, and debunk them using sound investment advice.

Debunking 5 Myths by Smart Investing

Only Experts Gain from Mutual Funds: Many believe investors need to be certified experts to understand mutual funds. However, that is not the case. Basic understanding of the markets and picking the right funds should be enough. Moreover, mutual funds that own a basket of securities are professionally managed by fund managers. Unlike for equities, here investors don’t need to keep tracking the correct timing of buying or selling shares. The fund manager takes care of that. 

Smart Move:  Based on that, the following Healthcare mutual fund may be a good addition as it carries favorable manager rating. It measures the risk-adjusted performance of a fund’s management relative to the fund’s peer group. Also, the fund has a proven record of impressive performance over the last 1 and 3-year periods. It also carries a low expense ratio and has no sales load.

ICON Healthcare S (ICHCX - MF report) invests most of its assets in equities belonging to the Health Care sector. The equity securities include both common stocks and preferred stocks of health care firms irrespective of their market capitalization.

ICHCX carries a Zacks Mutual Fund Rank #2 (Buy). The manager rating currently is a significant 20.4. It has returned 33.1% and 28.9% over the last 1 and 3-year periods.

Mutual Funds can be owned for No Cost: This is not entirely true. There are costs associated with owning mutual funds. Investors in mutual funds incur two primary kinds of expenses and fees: fund expenses and loads. Whereas fund expenses are paid indirectly from fund assets throughout the year, sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed.

It must be noted that high expenses are best to be avoided. Investors may treat them as the cost for owning a fund. Thus, higher cost will reduce profit margins. In that cost, a smart investor should be picking funds with minimum cost and high return. (Read: 3 Low-Cost Mutual Funds to Buy for 2015).

Smart Move: The following fund will be a good addition, as it carries positive returns over the last 1 and 3 years and has very low expense ratio. It also carries no sales load.

Fidelity Spartan 500 Index Investor (FUSEX - MF report) invests a lion’s share of its assets in stocks listed on the S&P 500 Index. Thereby, this Fidelity mutual fund seeks to provide results equal to the total return of common stocks traded in the US.

FUSEX carries a Zacks Mutual Fund Rank #2 (Buy). It carries an annual expense ratio of 0.10% as compared to category average of 1.08%. It carries no sales load. The 10 year expense projection is $128 as compared to category average of $1,648. It has returned 14.5% and 16.4% over the last 1 and 3-year periods.

Price Drop an Immediate Signal to Sell Funds: A decline in mutual fund price for a short period should generally not be a trigger to offload the fund immediately. While there are definitely certain bottom-ranked funds that have been on the losing side, there are also favorably-ranked funds that may be flying under the radar. So, instead of repenting, spotting the off-the-radar potential winners and investing in them via the dollar-cost averaging should be a smart decision.

This strategy involves purchasing a fixed amount of fund shares at regular intervals, irrespective of the bullish or bearish bias in the market. Ultimately, shares are bought both at higher and lower prices over a period of time. This results in a lower average cost per share. The idea is to further reduce the risk involved in investing compared to a one-time investment in a mutual fund.

Smart Move: The following Real Estate mutual fund may have low return over the last 4 weeks, but is expected to bounce back going forward. Favorable Zacks Rank, impressive performance over the last 1 and 3 year periods and the availability of automatic investment program (AIP) make the fund worth adding to the portfolio.

Stratton Real Estate (STMDX - MF report) invests mostly in securities of real estate and real estate related companies. It also invests in firms that own real estate assets including Real Estate Investment Trusts.

STMDX carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned just 2% over the last 4 weeks and has dropped 1.7% over the last 1 week. However, the 1 and 3 year returns stand at 27.6% and 14.6%. While the minimum initial AIP is $2000, the subsequent investment AIP is $100.

Big Capital Needed for Mutual Fund Investment: The dollar-cost advantage itself may justify that money can be poured in at regular intervals into a mutual fund, instead of investing a big sum. In fact, investments in mutual funds can begin with just $100. While investments can begin with just 100 bucks, many fund families also make a provision for the automatic investment program. USAA First Start Growth (UFSGX) lets investors open an account without investing a single penny if they chose the AIP option. (Read: 3 Best Mutual Funds to Buy for Just $100)

Smart Move: The following fund can owned with an initial investment of just $100. It has healthy returns and carries favorable Zacks Mutual Fund Rank.

Schwab Core Equity (SWANX - MF report) seeks long-term performance that will outperform the S&P 500 Index’s performance. The fund invests mostly in US stocks that have market cap of about $500 million or more.

SWANX carries Zacks Mutual Fund Rank #1 (Strong Buy). The minimum initial investment for the fund is just $100. It has returned 17.1% and 16.6% over the last 1 and 3 year periods.

Low NAV Mutual Funds are better than Higher NAV Funds: The fact is, it is irrelevant whether a fund has high or low NAV. Low NAV may allow investors to buy more units of mutual funds, but that does not necessarily mean higher return. Also, value of investment will be equal for both cases. What matters is the ultimate return. (Read: Pricing a Mutual Fund: The NAV Factor)

A top-ranked fund, with either proven performance track record or expectations of higher return going forward should be added to the portfolio. NAV will not make a difference.

Smart Move: The fund mentioned below has high returns and carries a top rank despite having a relatively low NAV.

T. Rowe Price Global Technology (PRGTX - MF report) invests a large portion of its assets throughout the world in the common stocks of companies that generate a majority of their revenues from the development, advancement, and use of technology.

PRGTX carries Zacks Mutual Fund Rank #1 (Strong Buy). Its NAV currently is $12.92. The fund has returned 23.3% and 20.2% over the last 1 and 3-year periods. Year to date, the fund has returned 4.9%. The fund also has $1.88 billion as total assets under management.