The myths surrounding Mutual funds myths surrounding Mutual funds
finance 66Jul

You need a lot of money to invest in mutual funds.

Investing is a form of saving which is meant to provide an individual to earn returns on the same and create wealth over a long horizon. Mutual funds is one such investment product. One myth that surrounds mutual funds is that individuals need a large sum of funds/ money to invest in any mutual funds. Obviously this is not true. Any individual can start investing money in a mutual fund with investment of as low as Rs. 500. So even if any investor starts with such a low amount, the disciplined saving and power of compounding will create a very good investment portfolio over a period of time.

We do not understand the stock market so avoid mutual funds

Investors are worried about not having enough knowledge about the stock market to make an informed decision to invest in mutual funds. In fact,mutual funds are meant for investors who do not follow the stock market regularly. Also apart from equity, mutual funds have many different debt funds. So ideally any investor who does not want equity exposure can look at various debt schemes offered by mutual funds.

Mutual funds do not generate returns

As mentioned in the previous paragraph, performance of any equity mutual funds scheme will be in correlation with the overall equity market. So obviously there is risk attached to your investment. However if we look at historical data, it is observed that a disciplined investor with a 5-7 year investment horizon has seen decent returns on investments. It is very important for investors to know their horizon and goal when they make an investment in mutual funds.

The top rated funds will always guarantee the best returns

All mutual funds investments are subject to market risk. Always remember this disclaimer. So there are no guaranteed returns ever in any mutual fund – be it equity or debt.

Demat account is necessary to invest in mutual funds

The fact is that you do not need a demat account to invest in mutual funds, However it is up to investors to decide their mode of holding of their mutual fund investment. Investors can always seek the assistance of a financial planner before investing into mutual funds.

Mutual funds that have a low NAV are good

Mutual funds that have a low NAV does not always mean that they are a good buy, the NAV does not present the picture of how the fund is performing, and on the other hand if the NAV of a fund is high, this too does not indicate that the fund is performing well or will continue to do so.

Investing in mutual funds identical to investing in the stock market.

Although the equity mutual fund scheme is likely to correlate the overall equity market, investors can avoid the volatility of one single stock by participating in a basket of stocks (through a mutual fund).So the underlying asset class is the same, the returns of any mutual fund scheme not necessary identical to returns of overall stock market or any one particular stock.

Investing in mutual funds is a hassle

Investing in mutual funds is thought to be troublesome, the process entails us handing over our original documents for KYC, also while we chose a fund to invest in we would have a number of documents to sign which makes the process a hassle. Since everything has now moved online and all you would need to do is receive a link from your mutual fund broker or fund house. To complete the online KYC process we would need to take a photo with your documents,select a mutual fund you would want to invest in and payments for the same will be made directly online.

Thank you for your patient reading!



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