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Myths about investing in mutual funds

There’s a popular adage that goes like this: A little knowledge is a dangerous thing. That’s true because you are bound to trip at some point if you don’t have the right information on you. It’s no different in the world of investing either. And like with every aspect in life, misconceptions do weave itself into a popular narrative. This article will act as a Good Samaritan and help bust myths on mutual funds investment that have inevitably become a part of mutual funds’ success story.

Myth 1. Mutual fund investments require lot of money

Reality: The reality is that there are a variety of mutual fund investment types. Most of them can be started with as low as Rs. 500 through the systematic investment plan (SIP) route. SIPs allow you to invest a certain amount of money on a monthly basis in most mutual fund investment options. This way, you don’t have to invest a lump sum amount in one go.

Myth 2. Mutual funds with lower NAV are always better

Reality: A mutual fund’s return-generating capacity depends on its underlying assets, past performance, fund management quality and future prospects. Contrary to popular mutual fund investment myths, the size of the net asset value (NAV) has nothing to do with its future performance.

Myth 3. You need to be an expert to invest in mutual funds

Reality: This is one of the myths about investing in mutual funds; however, it is partially true. You do have to research which mutual fund suits you the best. But once you have selected your kindred fund, leave the rest to the fund manager. You don’t have to be a savant, a consummate number-cruncher to strike gold. That’s because the fund manager, along with a team of analysts, put in their skill and expertise to manage your money. All said and done, it is still advisable to keep monitoring your investment’s performance from time to time.

Myth 4. Investing in high-rated funds can deliver better returns

Reality: A fund that has done well in the past may not necessary do well in future. You need to remember that you are playing the market, and that markets are dynamic and ever-changing. Therefore, performances of funds are fluid too. The list of high-rated funds keep evolving. It is very difficult for a fund to keep delivering high returns year on year. So, even though you should look at the fund’s past performance to gauge its strength, it is not gospel either. It cannot guarantee you high returns in future.

Myth 5. Investing in debt funds is risk-free

Debt funds invest in fixed income securities like bonds, government securities and other debt instruments. Though risk is on the lower side, performance of such funds can vary due changing interest rates and credit risk.

Myth 6. Mutual funds are for long-term investors only

Reality: Many investors believe there is no scope for short-term income in mutual fund investments. While it’s true that for higher returns you need to stay invested for longer, there is an opportunity for short-term investors too. That’s because there are many types of mutual funds. For instance, there are liquid funds, ultra-short-term funds and short-term funds that can offer decent returns over a shorter time frame.

To sum up, it is important to weed out the fake news associated with mutual funds. Even though we are currently living in a post-truth era, the world of finance is still very well ensconced in the world of facts and numbers. Bending them to your advantage can backfire in the long run. Instead, let myths play truant in the minds of those living in an altered reality.




Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.