Many people invest in mutual funds, but there are many myths about how they work. These misconceptions often prevent investors from making informed decisions. In this blog, we will debunk some general myths about mutual funds.
10 General Myths About Mutual Funds
Myth 1: Mutual Funds Always Guarantee Returns
Fact: Mutual funds do not offer guaranteed returns. They are market-linked investments, meaning their performance depends on the underlying assets. While some categories, like debt funds, aim for steady returns, they are not risk-free and are still affected by market conditions.
Example: Let’s say you invest in an equity mutual fund that tracks the Nifty 50 index. If the market declines, the fund’s value will decrease, and you may incur losses. However, over the long term, markets generally tend to grow, offering the potential for higher returns.
Myth 2: Mutual Funds Are Only for the Rich
Fact: Mutual funds are accessible to everyone. Many funds allow investors to start with as little as Rs. 100 via Systematic Investment Plans (SIPs), making them a great investment option for individuals from all financial backgrounds.
Example: A young professional earning Rs. 25,000 per month can start investing in mutual funds with just Rs. 500 monthly via SIP. Over time, this small investment can grow significantly through the power of compounding.
Myth 3: You Need a Demat Account to Invest in Mutual Funds
Fact: A demat account is not mandatory to invest in mutual funds. Without one, investors can buy and sell mutual funds through AMCs, distributors, and online investment platforms.
Example: If you purchase mutual funds through an AMC’s website or via a distributor like VSJ FinMart, the units will be held in your folio without requiring a Demat account.
Myth 4: Investing in Mutual Funds Is the Same as Investing in Stocks
Fact: While mutual funds invest in stocks, they differ from direct stock investments. Professional fund managers handle mutual funds, spreading investments across various assets like stocks and bonds, which lowers risk compared to investing in single stocks.
Example: Investing in a single stock like Reliance Industries exposes you to the company’s risks. However, investing in an equity mutual fund that includes Reliance, Infosys, TCS, and HDFC Bank diversifies your investment and reduces risk.
Myth 5: Mutual Funds Are Only for Long-Term Investments
Fact: While long-term investments in mutual funds can help create wealth, there are also short-term options, such as liquid and ultra-short-duration funds. Investors must consider their desired financial outcomes and investment time horizon to make informed mutual fund choices.
Example: If you need to park money for three months, a liquid fund is better than an equity mutual fund. On the other hand, if you’re investing for retirement, an equity mutual fund is more suitable.
Myth 6: Mutual Fund Investments Are Risky and Should Be Avoided
Fact: All investments carry some level of risk, but mutual funds offer various categories based on risk appetite. Debt funds, for instance, are relatively safer than equity funds. Fund choices should reflect an investor’s risk appetite.
Example: If you are risk-averse, investing in a conservative hybrid fund that holds both equity and debt can provide balanced returns with lower risk.
Myth 7: SIPs Eliminate All Risks in Mutual Funds
Fact: Even with SIPs’ advantages, such as cost averaging and reduced market volatility, investment risk remains. The returns from SIPs are still dependent on market performance.
Example: If you start a SIP in an equity fund and the market crashes, your investment value will temporarily decline. However, if investors maintain their investment strategy, they will benefit from purchasing more units at lower prices, resulting in higher gains when the market recovers.
Myth 8: Mutual Funds Always Give Better Returns Than Fixed Deposits
Fact: While equity mutual funds have the potential to generate higher returns over the long term, they come with market risks. Fixed deposits (FDs), on the other hand, offer fixed returns with no market risk. The choice between mutual funds and FDs depends on an investor’s risk appetite and financial goals.
Example: If you invest Rs. 1 lakh in an FD at 6% per annum, you will earn a fixed return. However, the same amount invested in an equity mutual fund could generate 12% returns or even result in temporary losses, depending on market conditions.
Myth 9: Mutual Funds Are Too Complicated for Beginners
Fact: Mutual funds are designed to be investor-friendly. With a basic understanding of risk and investment objectives, even beginners can start investing. Many platforms, including mutual fund distributors, provide guidance to make investing simple and accessible.
Example: A beginner can start with an index fund, which passively tracks the market and requires minimal knowledge and research.
Myth 10: One Needs a Financial Advisor to Invest in Mutual Funds
Fact: While financial advisors can provide valuable insights, investors can invest in mutual funds through direct plans or online platforms. Despite this, you can improve your investment decisions by seeking expert advice.
Example: A financial advisor can provide valuable assistance in selecting mutual funds tailored to your financial goals, particularly if you have limited time or expertise.
Start Your Mutual Fund Investment Journey with VSJ FinMart
If you’re looking to invest in mutual funds but don’t know where to start, VSJ FinMart is here to help! We provide expert guidance to help you choose the right mutual funds based on your financial goals and risk appetite. Start your SIP today with just a few clicks and take a step toward financial freedom!
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Final Words
Mutual funds are an excellent investment option, but misconceptions can lead to hesitation or misinformed decisions. By debunking these common myths, we hope to provide clarity and empower investors to make informed choices. Whether you are a beginner or an experienced investor, understanding the realities of mutual fund investing can help you align your investments with your financial goals. Always assess your risk appetite, time horizon, and investment objectives before investing. If needed, seek professional guidance to maximise your mutual fund journey.
Explore our blogs to gain deeper insights into mutual fund investing:
- 10 SIP Myths About Mutual Funds
- 10 Performance-Related Myths About Mutual Funds
- 10 Risk-Related Myths About Mutual Funds
- 10 Taxation-Related Myths About Mutual Funds
- 10 Investment Myths About Mutual Funds
- 10 Fund Management Myths About Mutual Funds
- 10 Redemption & Withdrawal Myths About Mutual Funds
Stay informed and invest wisely! 🚀
📢 Disclaimer
Mutual fund investments are subject to market risks, so read all scheme-related documents carefully before investing. Past performance is not indicative of future results. The information provided in this blog is for educational and informational purposes only and should not be considered investment advice. Investors should consult their financial advisors before making any investment decisions. VSJ FinMart is an AMFI-registered mutual fund distributor (MFD) that does not provide portfolio management or stock advisory services.