Fund management is crucial in mutual fund performance, but several myths confuse investors. Let’s bust some of the most common misconceptions about mutual fund management.
10 Fund Management Myths About Mutual Funds
Myth 1: Active Mutual Funds Always Outperform Passive Funds
Fact: While active funds aim to beat the market, passive funds often perform better due to lower expense ratios and consistent returns over the long term.
Example: Many index funds have outperformed actively managed funds in developed markets due to lower costs and efficient market pricing.
Myth 2: Mutual Fund Managers Can Always Prevent Losses
Fact: Even the best fund managers cannot control market movements. They use strategies to minimise risks, but losses can still occur.
Example: Despite expert management, even top-performing funds experience temporary losses during financial crises.
Myth 3: Only Well-Known Fund Houses Provide Good Returns
Fact: A fund’s performance depends on its investment strategy, not just the brand. Lesser-known AMCs (Asset Management Companies) can also deliver competitive returns.
Example: Many smaller AMCs have consistently outperformed funds from large fund houses over different periods.
Myth 4: A Higher Expense Ratio Always Means a Bad Mutual Fund
Fact: The expense ratio should be evaluated in the context of returns. Some high-cost funds justify their fees with firm performance.
Example: A fund that delivers 15% annual returns with a 1.5% expense ratio may still be better than a fund that delivers 10% returns and a 1% expense ratio.
Myth 5: Mutual Fund Ratings Remain Constant Over Time
Fact: Fund ratings fluctuate based on performance, market conditions, and strategy changes. A 5-star fund today may not be the best tomorrow.
Example: A fund ranked highly last year may drop in rankings due to underperformance in the current market scenario.
Myth 6: Liquid Funds Always Provide Fixed Returns
Fact: Liquid funds invest in short-term instruments and do not guarantee fixed returns. Their returns vary with interest rate changes.
Example: If market interest rates fall, liquid fund returns may decrease accordingly.
Myth 7: The Performance of a Mutual Fund Depends Only on the Fund Manager
Fact: While fund managers play a key role, external factors like market conditions, asset allocation, and economic trends also impact performance.
Example: A skilled manager may face challenges if the market downturn affects their investment sectors.
Myth 8: Mutual Funds Never Change Their Investment Strategy
Fact: Fund strategies evolve based on market trends, economic conditions, and investor objectives.
Example: A fund initially focused on large-cap stocks may shift its allocation to mid-cap stocks over time to take advantage of better opportunities.
Myth 9: The More Popular a Mutual Fund, the Better It Is
Fact: Popularity does not guarantee superior returns. Some lesser-known funds have performed better than highly subscribed ones.
Example: A well-marketed fund may attract investors despite underperforming compared to lesser-known but well-managed funds.
Myth 10: Switching Mutual Funds Frequently Improves Returns
Fact: Due to market timing errors, frequent switching leads to exit loads, taxes, and potential losses.
Example: Investors who frequently switch funds may reduce their overall returns due to costs and short-term market fluctuations.
Invest Wisely with VSJ FinMart
Understanding fund management myths helps investors make informed choices. If you need expert guidance on selecting the right mutual funds, VSJ FinMart is here to assist you!
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Final Thoughts
These myths about fund management can lead to poor investment decisions. While fund managers play a critical role, other factors, such as market trends, expense ratios, and investment strategies, influence mutual fund performance. Instead of chasing star ratings or frequently switching funds, focus on long-term consistency and a well-researched investment approach. Stay informed, stay patient, and let your investments grow over time.
Explore our blogs to gain deeper insights into mutual fund investing:
- 10 General Myths About Mutual Funds
- 10 SIP-Related 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 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.