Myths v/s Facts about Mutual Funds31 December 2021
Let's understand Myths v/s facts about Mutual Funds.
Everybody has an expert opinion regarding mutual funds, which often leads to an unhinged circulation of misinformation. A lie told a thousand times often starts to sound like the truth.
We have culturally been more declined towards savings which automatically places investment options at a disadvantage. Moreover, mutual funds are a fairly new addition which has made people wary of them. And the baseless myths about mutual funds don't help either.
Today we will bust some of the most prominent myths surrounding Mutual funds and share 10 facts about mutual funds to help you better understand this smart option of investments.
10 Mutual Funds Myths v/s 10 Facts about Mutual Funds
Myth 1: You need a large sum to invest in mutual funds
Fact: One of the prominent USPs of mutual funds is its incredibly low barrier entry. Through SIP(Systematic Investment Plan), you can invest as low as Rs. 500 per month in mutual funds. So the idea that you require a supposedly large sum to invest in mutual funds is a myth.
Mutual funds have enabled students and entry-level professionals to venture into this previously inaccessible world of investments and financial planning.
Myth 2: Mutual funds are riskier than shares
Fact: Mutual Funds are the safer cousins of shares.
While investing in individual shares, all your eggs are in the same basket, but the core of mutual funds is to diversify your investment, making it the safer investment choice of the two.
For example, as opposed to riding all your money on a single horse, mutual funds invest your money in 20 different stocks. So you can easily judge which is the safer investment option.
Myth 3: You must have a DEMAT account to invest in Mutual Funds
Fact: You can buy the mutual funds units either as a physical statement or dematerialized form. So, it is not compulsory to have a Demat account for investing in mutual funds.
Myth 4: Mutual funds are available only for the long term
Fact: Mutual funds can be long-term, short-term, or even medium-term, depending on your financial needs and investment objective.
However, Mutual funds are known for the high returns that they provide by the power of compounding and that works when you are in it for the long term.
Based on your needs, you can choose from a variety of mutual funds. For example, if you are looking for a short and medium-term investment opportunity, debt funds are more suitable for you. However, long-term investment calls for equity funds.
Mutual Funds are best suited for long-term investment. Long-term funds are known to provide multiplied returns.
Myth 5: Mutual fund investment has a lock-in period and one cannot redeem investment easily.
Fact: Tax saving (ELSS) mutual funds and closed-ended mutual funds have a lock-in period, for other mutual fund investments there is no lock-in period. However, exit load might be applicable on premature withdrawal for certain mutual fund investments based on the type and period of your investment.
Myth 6:Mutual funds only invest in equity markets.
Fact: Mutual Funds have a diversified portfolio that includes equity shares, government treasury bills, commercial paper, gold, company deposits, real estate, etc.
Mutual Funds allow investors to build diversified financial portfolios through exposure to a variety of asset classes.
Myth 7:Too young to start investing
Fact: On the contrary, the early you begin investing, the more wealth you can accumulate. There's no "Too Young" when investing in mutual funds. The expert analysts and portfolio managers in Mutual Funds enable anyone with an intent to start investing irrespective of their age, experience, and profession.
Experts also believe that it is better to invest in mutual funds from an early age. That is because it allows you to remain invested in the market for an extended period and have time to your advantage when the market suffers an unprecedented crisis.
Myth 8: SIPs are best suitable for Equity Mutual Funds
Fact: Irrespective of the type of Mutual Fund you choose to invest in, SIPs remain a viable option. Whether it's equity, debt or hybrid mutual funds, SIPs are suitable for each one of them.
Any information that says otherwise is nothing but hogwash.
Myth 9: Debt is better than equity
Fact: Debt funds and equity funds have their strengths and weaknesses, but it would be unfair to say one is better than the other as they serve different purposes like debt funds remain stable against market downfall. In contrast, equity funds are known to provide better returns.
Depending on your specific situation, you can find that maybe debt funds serve your financial plan better than equity or vice versa. But, first, understand both the mutual funds thoroughly and see which one aligns better with your requirements.
Myth 10:Know Your Customer (KYC) Is Needed Multiple Times for Mutual Fund Investments.
Fact: Although KYC is mandatory for investing in Mutual Funds, it's a convenient one-time process.
With digital banking, the process has become seamless with just a few steps. So don't fret about the KYC process; fear the misinformation surrounding mutual funds that hinder investors like you from unlocking an incredible investment opportunity.
Best Mutual Funds to Invest
This equity multi-cap scheme seeks to give medium to long-term capital appreciation through appropriate diversification and taking a low risk on business quality.
It provides an 81% return on investment in one year.
This equity multi-cap scheme aims to catch growth opportunities provided by large-cap, mid-cap & small-cap companies with flexibility & discretion to invest up to 100% into equities while keeping in mind not to exceed 25% in debt and money market instruments.
It provides a 77.26% return on investment in one year.
Now that we have busted all the mutual fund myths and introduced you to the top 10 facts about mutual funds, what are you waiting for? Start investing with MFonline.
Is mutual fund better than FD?
Fixed Deposits can guarantee you a fixed income but the returns are significantly lower in comparison to a similar amount invested in Mutual Funds.
Is Mutual Fund Safe?
Mutual Funds are a safe option if you understand them. The risk in investments is mostly regarding market fluctuations but when you invest in long-term equity mutual funds it hardly affects your eventual returns.
What is interesting about mutual funds?
Having a much bigger amount of money than each individual investor, the professionally managed mutual fund can assist in reducing risk by buying many different stocks, bonds, and other investments. In addition, the pooled money allows the professional managers to afford a staff of analysts to assist in selecting the best investments.
Can mutual funds make you rich?
Mutual funds generate high returns as there's no cap on earnings. Depending on the performance of the security where the money is invested, returns are generated. As financial experts invest money on your behalf, returns are generally high owing to their expertise.