9 Myths and Facts about Mutual Fund Schemes
Mutual funds have now become the most popular investment option among investors. Many initiatives are being introduced to encourage the youth to start investing in mutual funds at an early stage to secure their future. However, some people are still confused about whether to invest in mutual funds or not due to many misconceptions about the fund. Let’s take a look at some common myths and facts to clear up the confusion and misunderstanding
Myth 1: To invest in a Mutual Fund Scheme, an Individual requires a Large Amount
Fact: Investing in mutual funds does not require a large amount. Investors can start their SIP (systematic investment plan) with Rs. 500. For a lump-sum or one-time investment, one could start investment at just Rs. 5000 with no upper limit.
Myth 2: Mutual Funds are meant for Skilled Expert
Fact: Mutual funds can be accessed by common individuals who do not have enough experience or lack the knowledge to invest in the securities market. Mutual funds are managed by experienced fund managers who invest the money in securities such as stocks and bonds.
Myth 3: A Demat Account is necessary for Mutual Funds
Fact: It is optional for the investors to receive their units in dematerialized or physical form. Therefore, it is not mandatory to have a demat account in order to invest in mutual funds. However, in the case of exchange-traded funds (ETFs), it is necessary to have a demat account.
Myth 4: Mutual Funds are only for Long-term Investments
Fact: Individuals can invest for long-term or short-term duration depending on their financial goals and investment horizon. There are various short-term schemes where one can invest for a few days to a few weeks to a few years. For example, liquid funds are low-duration funds with a maturity duration of less than 91 days.
Every time frame can have its own benefits. Equity Schemes are most suitable for long-term investment, while debt mutual funds are ideal for short-term investment (less than 5 years)
Myth 5: Investing in Mutual Fund is same as investing in Stock Market
Fact: No, investing in mutual fund is not similar to investing in the stock market. Mutual funds invest in stocks, bonds and other money market instruments such as commercial papers, Treasury bills, certificates of deposit, etc. However, many retail investors cannot access some of these instruments due to the high investment amount. On the other hand, mutual fund schemes allow retail investors to invest in these investment opportunities with an affordable investment amount.
Myth 6: Mutual Funds offer guaranteed return on Investment
Fact: Mutual funds do not guarantee returns. Although mutual funds have the potential to give attractive returns, their performance depends on the market conditions and the fund manager’s experience. Past performance of a mutual fund only shows how the fund has performed but the past performance is no guarantee of future returns.
Myth 7: A higher NAV means that the scheme has reached its limit
Fact: The net asset value (NAV) of a scheme shows the market value of stock or asset held by the company. Mutual funds invest in stock, which can be purchased or sold based on the fund’s strategy. NAV goes up when the stock performs well. If the fund manager believes a stock has reached its peak, they may sell it.
Therefore, a higher NAV does not mean that the scheme has reached its peak or is expensive. In fact, a high NAV means that the company has performed well over the years.
Myth 8: You are too young to Invest in Mutual Fund
Fact: One must start investing in mutual funds at an early stage. The earlier you start your investment journey, the more wealth you can build. This is because you will have time on your side. If the market declines, you will have enough time to withdaw your money if you stay invested. Therefore, it is never too early to start investing in mutual funds. Do not wait for the right moment to begin your mutual fund journey.
Myth 9: A Mutual Fund Scheme with a lower NAV is better than a higher NAV
Fact: A mutual fund’s NAV only indicates the market value of the fund’s investment and not the market price. Therefore, lower NAVs do not guarantee higher returns. It depends on the market fluctuation, rate of return, and the performance history of the scheme.
