Mutual fund myths: Truth behind 7 common investment myths

Are you planning to invest in mutual funds but hesitant to do so? Don't let myths hold you back! In this article, we debunk common Mutual Fund misconceptions to guide your investment journey. Read on to discover the truth.

Mutual fund myths: Truth behind 7 common investment myths

Monday January 01, 2024,

5 min Read

Amidst a sea of investment options, Mutual Funds remain a pragmatic choice for growing wealth. With their diversified, professionally managed approach, they've long been a mainstay in investment portfolios.

Needless to say, mutual funds offer a plethora of advantages–skilled fund managers conduct thorough market research, ensuring astute investment management, and diversification benefits- outweighing direct stock picking with their professionalism, cost-effectiveness, scalability, liquidity, and so on.

Despite recent high returns attracting newcomers, the Mutual Funds industry grapples with pervasive myths. Some stem from misinformation, others from misunderstanding.

Are you planning to invest in mutual funds but hesitant to do so? Don't let myths hold you back! In this article, we debunk common Mutual Fund misconceptions to guide your investment journey. Read on to discover the truth.

Mutual Funds

Myth #1: Mutual funds are exclusively for investment professionals

Fact: Both beginners and seasoned traders can invest in mutual funds with adequate research

Contrary to the belief that expertise is essential, mutual funds are ideal for individuals with limited market knowledge. Managed by professionals, they eliminate the need to navigate stock picking and market timing. Fund managers conduct research and analysis, making them suitable for various risk profiles and financial goals, aided by guidance from a reliable mutual fund adviser.

Devote adequate hours to learning and researching about it properly before investing spontaneously.

Myth #2: Mutual funds solely cater to long-term investments

Fact: You can choose to invest as per your financial goals

While Mutual Funds are recommended for long-term growth, they're versatile, catering to short and medium-term goals too. With options spanning across equity, debt, and hybrid funds, each with varied maturities, there's a fit for every investor's time horizon and risk tolerance.

In fact, different durations offer unique benefits. Long-term investments in Equity Funds secure higher returns for wealth-building goals. On the other hand, debt funds provide better returns than government-backed FDs, ideal for shorter durations.

Choose your fund duration wisely, considering fund objectives and personal requirements. You can opt for liquid funds or short-term debt funds for shorter durations and diversify them across durations for optimal benefits.

Myth #3: Mutual funds are all about stocks

Fact: They are widely versatile

Mutual funds aren't solely focused on stocks. They unite investors to explore diverse avenues like bonds, equities, stocks, and hybrid funds, catering to individual financial goals and risk preferences.

These funds offer a diversified investment approach by gathering capital from numerous investors across different asset types. 

Myth #4: Returns are guaranteed in mutual fund investments

Fact: Mutual funds may offer high returns but nothing’s guaranteed due to market fluctuations

Mutual Funds have the potential for high returns based on associated risks. However, they don't assure guaranteed returns. These investments are market-linked and subject to market fluctuations.

It's essential to understand that past high returns in mutual funds don't ensure future success. Although past performance provides important insights, the dynamic nature of financial markets doesn’t ensure a guarantee of future outcomes. 

Myth #5: You need a huge bank balance to invest in mutual funds

Fact: You can start as low as Rs. 500

Contrary to popular belief, mutual funds offer accessible investment options for everyone. With systematic investment plans (SIPs), you can invest small amounts regularly, starting as low as Rs. 500. 

You don’t need a substantial lump sum, making mutual funds a truly inclusive investment opportunity for those starting small. Consider it like saving pocket money; allocate a portion each month until you reach a minimum investible amount, and then begin investing!

Also Read
Ultimate Guide for SIP Mutual Fund Investment plans

Myth #6: Mutual funds hold greater risks than shares

Fact: With proper research, these risks can be navigated

Mutual funds, like any investment, involve risk, but they're not inherently riskier than individual shares. They offer diversification by pooling investments and spreading risks across various securities. This diversification minimises risk and typically offers better long-term potential returns compared to investing solely in individual stocks.

Just as crash diets often disappoint, impulsive investing can backfire. Effort and research are key to navigating investment risks. Both fitness and financial growth require discipline and time. To understand the market's potential, one must dive in and gain firsthand experience. 

Myth #7: Mutual funds come with a lock-in period and lack easy redemption options

Fact: You are as free as a bird

While some specific funds might have a lock-in period, most mutual funds don't. Investors generally have the freedom to redeem units at their convenience, albeit some funds may impose exit loads for early redemption. Even if the lock-in period is present, it varies among fund types, with many offering liquidity and flexibility for investors to redeem at any time.

Myth 8: A demat account is a must-have for mutual fund investment.

Fact: It isn’t a necessity

While helpful, a demat account is not mandatory; investors can buy mutual funds online or offline through AMCs or recognised platforms without one. 

Whether through distributors or directly from fund houses, various online platforms facilitate fund transactions without a demat account. Investors can choose between dematerialised or physical units, and completing a ‘Know Your Client (KYC)’ process is essential, regardless of a demat account.

In today’s economy, investing is crucial due to soaring living expenses; relying solely on income may fall short. Dispelling mutual fund myths is key to informed investment decisions. With these myths debunked, embark on your mutual fund investment journey armed with realistic financial goals.