Debunking all the myths about Mutual Funds

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So you’ve finally decided to take the plunge into the pool of mutual funds, but there are voices around you saying otherwise. Many opinions and rumours are telling you it’s not a good idea. Let us simplify this landscape that promotes this exasperating farrago of distortions, and misinterpretations (Shashi Tharoor moment). In this myth buster, let’s change this situation in one go! 

The table below contains all the myths floating around. That’s not all. We’ve taken the extra step of explaining how each myth is not true. Have a look! 

Myths 

Facts

Mutual funds are only a high capital investment option.

Mutual funds investments can start from as low as Rs. 100

Mutual funds do not come with any risk profile. 

Mutual funds are subject to market risks

Only investment professionals should invest in mutual funds.

Mutual funds are practically for everyone- newcomers and experienced traders alike

Mutual funds only offer equity and insurance options 

There are many types of mutual funds based on asset classes

The past track record of a mutual fund determines its performance value

Mutual fund performance depends on the current and future market trends and the fund manager

Mutual funds are a good fit only as a long term investment option

Many mutual funds come with plans that offer short term liquidity

You must have a demat account to invest in mutual funds

You do not require a demat account to invest in most types of mutual funds

Mutual funds only generate low dividends

There are various types of mutual funds that generate high interest and dividends

You can’t withdraw the invested capital from a mutual fund before the maturity period ends

Many open-ended mutual funds allow you to divest whenever you want  

Mutual fund investments are an outdated investment option

Mutual funds are still one of the most popular forms of investment options today

Mutual funds offer guaranteed returns

Many mutual fund returns are subjected to market ups and downs

Disclaimer: Do your own research before you invest in mutual funds since these options come with brand-specific fine prints, terms and conditions. 

The Truth: Explained 

Myth 1: 

Mutual funds are only a high capital investment option

The Fact:

You can invest in mutual funds for as low as Rs. 100 when investing through a Systematic Investment Plan or SIP. This threshold is set at an approximate range between Rs 5,000 to Rs. 10,000 for lump sum investment. Only large-cap mutual funds have a high threshold which may go beyond Rs. 1 lakh. There are small-cap and mid-cap funds for you to choose from as well.

Myth 2: 

Mutual funds do not come with any risk profile. 

The Fact:

Mutual fund investments also depend on the prevailing market situation. The profits and losses depend on whether the assets invested have grown or fallen in their value from the time you invested in the fund. Asset Management Companies or AMCs must disclose the level of risk for each fund for the investor's benefit.

Myth 3: 

Only investment professionals should invest in mutual funds.

The Fact: 

Mutual funds are one of the best ways to grow your savings even if you have limited knowledge of how the markets work. Besides, experienced traders prefer mutual funds because they are much more stable and diversified than most other investment options in the market today. Professional fund managers invest on your behalf, so you don’t have to and yet enjoy the benefits.

Myth 4: 

Mutual funds only offer equity and insurance options 

The Fact:

There is a wide range of mutual funds classified based on the assets it has invested in. Insurance funds are sector-specific, while equity funds have their own distinct category. There are other types of mutual funds based on asset classes, such as debt funds, balanced funds, real estate funds and more. 

Myth 5: 

The past track record of a mutual fund determines its performance value

The Fact:

How a mutual fund performs depends on the period between your initial investment and the time you decide to withdraw your funds. In part, this also depends on the decisions made by the fund manager. There is practically no role in the historical performance of such a fund. However, you may read up on the historical value to learn how the price volatility has affected the overall investment along with the past track record of the fund manager.

Myth 6: 

Mutual funds are a good fit only as a long term investment option

The Fact:

Many mutual funds come with plans that offer short term liquidity. 

Myth 7:

You must have a demat account to invest in mutual funds

The Fact: 

A demat account is only required for trading in stocks and Exchange-Traded Funds. Most of the funds allow you to invest online and offline through AMCs and other recognised platforms without a demat account. 

Myth 8: 

Mutual funds only generate low dividends

The Fact: 

There are many types of mutual funds. If you are looking for a mutual fund that offers the opportunity to receive high interests and dividends. But you must also be prepared to incur a loss depending on how the fund performs. 

Myth 9: 

You can’t withdraw the invested capital from a mutual fund before the maturity period ends

The Fact:

Most mutual funds have the option of generating short-term liquidity. Open-ended funds have the option to exit early. However, check the terms and conditions associated with such funds since there may be certain charges set for the initial investment and early withdrawal. Above all, these may also have a high threshold for the invested capital. 

Myth 10: 

Mutual fund investments are an outdated investment option

The Fact: 

Mutual funds continue to remain one of the top-performing investment options in the market today. You’ll be surprised to know that April 2022 reported an all-time high of 5.39 crore SIP accounts. Newcomers also prefer this type of investment because the risk level is informed in advance compared to other options such as stocks, forex and crypto. 

Myth 11: 

Mutual funds offer guaranteed returns

The Fact: 

Mutual funds have the ability to give high returns. But remember that this instrument is linked to market returns that are subjected to market volatility. So expecting them to give guaranteed returns would be a mistake.

In a nutshell

Not everything that you hear about mutual funds may be entirely true. Information about all funds is readily available online. And if you still don’t trust the internet then you can always approach the company and talk to expert financial advisors on matters like this to get all your doubts cleared.

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