10 Common Mutual Fund Myths

Mutual Fund Myths and truths

Before investing, whether in a fixed deposits schemes or mutual funds, novice resist because of the false perceptions revolving around those financial instruments. These perceptions arise due to misconception or due to perception of people around us. As result we always stay on the edge and hence keep our money idle. So, we will try to throw light on some of these barriers, which resist you from investing. So stay along….

Mutual funds is a better investment method to give ample returns if we stay invested for a long period of time, but a new investor makes his/her own speculations before getting into it.

Today, we are going to discuss 10 common myths that threaten beginners before investing in mutual funds.

1) Myth: Buying Mutual fund is a cumbersome process

Truth: Buying Mutual fund is as easy as booking a movie ticket.

After digitization, Life got much easier as many time-consuming activities can now be done with one tap on your smartphone. Buying a mutual fund follows the suit as it got easier to participate. It is a 5-10 minutes process to purchase a mutual fund online. You just need to follow some basic steps to participate in mutual fund.

Even you can choose the tenure as well as investment cycle i.e. monthly or yearly which makes it more flexible in comparison to any other type of investment.

You can purchase a fund from their websites, applications or via call or sms. Isn’t it easy?

2) Myth: Mutual funds are complicated to understand

Truth: Choosing the mutual fund is easy if you go with a goal-based approach.

Mutual fund investments are easy to understand if you set your long-term financial goal in perspective. Different mutual fund house provides the list of financial goals to select and shows the best fund to invest based on your chosen goal.

For an example, the Axis Mutual fund website shows the long-term goals and its associated funds. Planning a world Trip or retirement everything and anything is provided by the fund houses.

List of associated funds for the World Tour as a long-term goal, the fund house itself analyze the best scheme with an amount to invest in.

3) Myth: Require a lot of money to start in

Truth: You can start with as minimum as Rs. 500

Earlier, people have the mindset that equity investment requires a lot of money to start. But now things have changed, mutual fund investing can be started with Rs.500 in any type of fund on SIP(Systematic Investment Plan) basis.

This makes it easier for anyone to invest. So there is no need for you to be rich, to become rich.

4) Myth: My money is not in hand of the trustworthy funds’ companies

Truth: Mutual Fund investments are being tracked or monitored by governing bodies

Mutual funds investment is highly secured in terms of structure. It is regulated by the governing body, SEBI, which deals with the structure and policies of the mutual funds, ensure that investor should not lose money due to a scam or any bankruptcy. Below we have explained how mutual fund work and how mutual funds are governed. ***

Structure of Mutual Funds – Source: https://www.jagoinvestor.com/2017/04/mutual-funds-myths.html

structure-of-mutual-fund-in-india

5) Myth: Mutual funds are similar to Stock Market

Truth: Stock Market is one of its parts, there are many other funds which do not deal in Stocks.

This is a common myth that the mutual fund works like the stock market. This is not completely true, only equity mutual fund deals in stock which somehow makes you feel more volatile in terms of returns.

There are different types of the schemes involved in the mutual fund such as:

  • Equity fund schemes
  • Debt fund schemes
  • Hybrid fund schemes
  • Solution-oriented schemes
  • Other fund schemes

Apart from the Equity fund schemes, other funds deal in the government bonds, money market instruments etc., which are the safer mode of investment. But yes, the more it is safe… less will be the returns.

6) Myth: Mutual funds are always for long-term

Truth: There are many other types of mutual funds which have the investment period from 3 month – 2 years.

Mutual funds are usually marketed as long-term investments. As it turns out, it’s not always the case. There are mutual funds called as liquid mutual funds and even short-term debt funds which can be used for short-term investment horizon like 3 months or 2 years.

Find the below funds which have the investment horizon of less than a year:

7) Myth: Mutual fund redemption takes a long time

Truth: You can take out your money on a very next day of your investment.

This one is again a misleading information. Mutual funds are highly liquid and you can get your money back instantly through redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from which you can redeem in 24 hours.

8) Myth: More mutual funds in portfolio means Diversification

Truth: A Single mutual fund itself can be a diversified portfolio

In general, diversification can’t be used in terms of the mutual fund. There is a common myth of the first time investor that more number of funds, more is the investment diversified. But in reality, it is not a case.

Equity mutual fund itself invest in the different sectors of the market. So it is not smart to purchase multiple funds in the same scheme.

9) Myth: Demat account required to invest in mutual funds

Truth:  Demat is one of the ways to invest in mutual fund, you can also purchase directly from AMC

This myth comes into play when you think of purchasing a mutual fund. In reality, demat account is just one way to purchase mutual funds.

An investor can also purchase the funds directly from the Asset Management Companies(AMC) or can say fund companies without any extra fees to pay them. In case of Demat, you need to pay some percentage of the invested amount to the brokerage firm through which the demat is linked.

10)Myth: Mutual funds of bigger and trusted brands are always better

Truth: Mutual funds performance depends on asset management expertise.

Bigger is better.This is not always true, mutual fund returns cannot be decided by the brand name. There are many less known funds that give better returns as compared to the bigger brands.

Funds like PPFAS (Parag Parikh Long-Term Equity Fund), Quantum mutual funds, Invesco Funds etc., these are some name which provides better returns in long run among equity-related funds.

Fund performance must be evaluated based on the past records of the fund manager who manages that fund, there are other factors to be considered, which can help you to decide best mutual fund for you.

Conclusion:

In our opinion investing in mutual funds is safe if you have done your homework i.e. your clear all the misconceptions regarding the fund you are putting your money into and understand all the details about it. Don’t worry, we will be there with you on that journey to help you. So stay tuned.

In Next Blog: We would be discussing different types of mutual funds.

Please share us other misconceptions or myths about mutual funds and we will try to throw some light on those…

Thanks and Regards

 

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