Common Myths about Mutual Funds Busted

There seems to be a lot of false information floating around us when we think of a MF investment and it affects the decisions of many beginners. To ease beginners and those who have heard a few of these myths, I will present a list of 14 myths (7 common and 7 uncommon) that will assist you in an unbiased and a faultless MF investment.

Myth 1 : I need a huge amount of money to invest

Fact: No. You don’t always need a lump sum of money to invest in mutual funds. You can always opt for a MF SIP (systematic investment plan) which will allow you put in small amounts of money, at regular intervals and still reap returns similar to a normal lump sum mutual fund investment.

Myth 2 : I should invest for long-term only

Fact: No. Investments in mutual funds can be made for any duration depending upon your financial needs and targets. Hence you can invest for as short as a 3 months (generally varies among different schemes) to any number of years.

Myth 3 : I don’t know anything about markets hence I can’t invest in MF

Fact: You don't need to be an expert to invest in MF unlike stocks where you have to pick up individual stocks and analyse them before investing. All you have to do for a MF is select an Asset Management Company with a good track record or brand name and opt for an equity/ debt/ hybrid/ thematic funds or any other type you wish to and the rest is on to the AMC to select good performing companies and handle your money in the best possible way to make your money grow.

Myth 4 : Mutual Fund is purely an equity investment and I can't diversify

Fact: No. MFs are not just about investing in equity. MFs are of various types like equity based, debt based, balanced fund, thematic fund, sectorial fund, hybrid fund, index fund and so on. But all MF investments are based on the performance of the companies that have been chosen by the AMC to form a mutual fund scheme.

Myth 5 : I should avoid high-NAV funds or I should opt for high-NAV funds only

Fact: Neither is true or false.High-NAV funds can mean either that the fund has reached its optimum growth or that fund is in the growing phase. Hence, make a decision based on whether the companies whose securities comprise your mutual fund are good performers or not and whether the AMC managing your MF has the best strategy which is in sync with your needs.

Myth 6: I need a Demat account

Fact: Absolutely not mandatory anymore. Check how you can invest in MF without owning a Demat account. You can opt for a Demat account if you have multiple financial investments and so you wish to have them all visible in one screen or in case of stock investments where owning a Demat account is mandatory.

Myth 7 : Mutual Fund will make me rich

Fact: A Mutual Fund can be your best money spinner if you have chosen the right type as per your needs, and have been sure to keep a track of it at regular intervals and if need be have undone and redone your financial planning. Besides, you must not forget that investments in the market are always exposed to market risks and hence there are no guaranteed returns on your Mutual Fund investments.

Read Next: 7 Uncommon MF myths busted

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