Despite the plethora of investment opportunities in the market, Mutual Funds continue to stand out as a superior and pragmatic choice for growing your wealth. One of their paramount advantages is the professional management of your investments by experienced fund managers who meticulously research the market.
Furthermore, another key advantage of Mutual Funds lies in the diversification of your investment portfolio.
In India, Mutual Funds are widely recognized as one of the most favored investment vehicles. However, such popularity is not without its share of misconceptions. Like any thriving industry, Mutual Funds grapple with unwarranted rumors and myths. Here, we debunk some of the common Mutual Fund myths. Keep reading to learn more.
Disclaimer: Do your research before you invest in mutual funds since these options come with brand-specific fine prints, terms and conditions.
Mutual funds are only a high-capital investment option.
You can invest in mutual funds for as low as ₹100 when investing through a Systematic Investment Plan or SIP. This threshold is set at an approximate range between ₹5,000 to ₹10,000 for lump sum investment. Only large-cap mutual funds have a high threshold which may go beyond ₹1 Lakh. There are small-cap and mid-cap funds for you to choose from as well.
Mutual funds do not come with any risk profile.
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 (AMCs) must disclose the level of risk for each fund for the investor's benefit.
Only investment professionals should invest in mutual funds.
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.
Mutual funds only offer equity and insurance options
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.
The past track record of a mutual fund determines its performance value
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.
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
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.
Mutual funds only generate low dividends
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.
You can’t withdraw the invested capital from a mutual fund before the maturity period ends
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.
Mutual fund investments are an outdated investment option
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.
Mutual funds offer guaranteed returns
Mutual funds can 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.
There are several myths about mutual funds, 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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Like with any form of investment, there are disadvantages to mutual funds as well, these include, high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
There are 5 main reasons why people avoid investing in mutual funds, they are:
Some common mistakes are:
Yes, mutual funds can be beneficial as they provide diversification and professional management, making investing more accessible and potentially yielding higher returns for investors.
Learn more about Mutual Funds here