• September 09, 2022
• Megha Kapadia
• Comments

7 Myths about Mutual Funds that you must stop in your mind

Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This one sentence represents myths about mutual funds in most people’s minds. Mutual Funds are based on the stock market. Considering this market risk, people don’t prefer mutual funds as an investment option. However, many other myths spread in the investment market.

A mutual fund is one of the best and simple ways to invest money. Money will be professionally managed by fund managers who have conducted in-depth market research. Nevertheless, a mutual fund is also gaining momentum in today’s generation, but these drawbacks are also in the form of myths. Mutual funds are dealing wrongly in some individuals’ minds.

So, let’s clear this up today. In this blog, you will relate to folk tales on mutual funds that people are spreading in the community. Thus, here we are with the facts of those misconceptions. Check Out!

1. Myth 1: One needs an immense amount to invest in a mutual fund

Fact: This is the wrong conception. A person can invest only 100 Rs. through SIP in a mutual fund. SIP is a systematic Investment plan wherein an individual can make a regular monthly instalment in the fund and generate wealth in the long-term period. The secret part is that the earlier you start to invest in SIP, the richer you can be.

2. Myth 2: Mutual Funds are for market exerts; beginners can’t do

Fact: Though mutual funds are based on the market, there is no need to time the market. Investors don’t have to learn skills and knowledge to make money decisions. An individual has to fix the investment amount and let the fund managers handle the money.

3. Myth 3: It is best only for long-term

Fact: Mutual fund is goal-based investing. You can plan even for the short term to achieve your financial goals. Risk tolerance, securities, and tenure can be customized in numerous schemes. Debt mutual funds are suitable for investors with short-term investment horizons.

4. Myth 4: A scheme with a lower NAV is better for gaining high returns

Fact: NAV means Net Asset Value. A mutual fund’s NAV represents the fund’s investments’ market value, not the market price. So, choosing the stock based on a lower NAV is irrelevant. For example, you invest ₹20,000 each in scheme A, whose NAV is ₹40, and scheme B (whose NAV is ₹200. You will be allotted 1,000 units of Scheme A and 200 units of Scheme B. Assuming that both schemes have invested their entire corpus in precisely the same stocks and proportions, if the underlying stocks collectively appreciate by 10%, the NAV of the two schemes should also rise by 10%, to ₹22 and ₹220, respectively. Thus, in both, the value of your investment increases to ₹ 22,000. So, it’s clear that NAV doesn’t matter when choosing funds.

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5. Myth 5: There will be a guarantee on returns in mutual funds

Fact: Mutual funds will give high returns than fixed deposits. Though, returns are not fixed or guaranteed here. Mutual funds rely on the stock market. So, it constantly fluctuates with the market. So, expecting fixed returns in mutual funds is the wrong perception for an investor.

6. Myth 6: Demat account is mandatory for investment in mutual funds

Fact: Investors can purchase physical verification to start SIP in a mutual fund. A Demat account is not compulsory to invest in. If you start investing in mutual funds for the first time, you must complete the KYC form. After the verification, your investment will activate.

7. Myth 7: You are young to invest in a mutual fund

Fact: It is wise to invest early to build a large corpus till retirement. The primary benefit is that an investor can start investing a small amount every month, and the magic is you will create great wealth with this investment after long-term and consistent investing. So, the sooner you start, the higher fund you can build for yourself.

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Wrapping up

All these myths are spreading only negativity among people, and you can also be a part of them. However, mutual funds are the best option if you want to build your wealth through systematic investment. Nobody can stop you from making an unbelievable profit if done correctly and at a young age. So, decide wisely and start quickly.