11 Mutual Fund Myths Busted!

Despite the abundance of investment options available on the market, Mutual Funds remain one of the best and most practical ways to invest your money. One of the most significant benefits is that your money will be professionally managed by fund managers who have conducted extensive market research.

Not to mention that one of the primary benefits of investing in Mutual Funds is portfolio diversification.

One of the most widely used investment options in India is Mutual Funds. Popularity carries a unique set of drawbacks. While every industry has to deal with rumours, Mutual Funds deal with false information or myths. The following are some of the Mutual Fund Myths that have been debunked. Read on!

Mutual Funds: Myths and Facts

Myth 1: To Invest in Mutual Funds, One Needs a Substantial Amount of Money

THE TRUTH:

This is one of the most common misconceptions about Mutual Funds. Investing in Mutual Funds does not require a large sum of money. Furthermore, there is no maximum investment amount.

In the case of SIPs (Systematic Investment Plans), investors can begin their investing journey with as little as Rs. 500. As a result, one does not need to be wealthy to invest in Mutual Funds.

Myth 2: In Order to Invest in Mutual Funds, One Must Be a Skilled Expert

THE TRUTH:

You do not need to be an expert to invest in Mutual Funds, you can be an amateur and still invest in them. Mutual Fund companies use their experience to allocate your money in a way that maximizes your returns. This is not the case for other investment tools, but you may invest in them, once you have gained substantial experience.

Myth 3: Returns Are Guaranteed Through Mutual Fund Investments

THE TRUTH:

Based on the risk involved, Mutual Funds are able to produce high returns. However, returns are not guaranteed by Mutual Funds. Mutual funds are market-related investments that fluctuate with the market. Therefore, expecting them to provide guarantees is unreasonable.

Myth 4: Financial Planning Is a One-Time Activity

THE TRUTH:

Most people believe that financial planning is a one-time exercise in which they can invest once and reap the benefits forever, but the truth is that you must have a financial plan in order to achieve your goals in a systematic manner. Your objectives are bound to shift over time. If one wants to earn high returns, Mutual Fund investments must be made on a consistent basis through SIP.

To achieve financial objectives, systematic and regular investing is crucial. Regular investing is also insufficient. The importance of portfolio reviews is equal to that of regular investing. Your goals may not change as a whole, but there may be several factors influencing them, such as economic, environmental, and political factors, and thus, it is critical that you review your investments on a regular basis.

Myth 5: Mutual Fund Investments Require A DEMAT Account

THE TRUTH:

Mutual Fund investors can choose to receive their units in dematerialized or physical form. Therefore, having a DEMAT account is not required in order to invest in Mutual Funds. If you are investing in Mutual Funds for the first time, you must complete a Know Your Client (KYC) form and submit it with your application.

You must also submit additional pertinent supporting documentation. Your investment will be approved once your KYC Documents have been verified.

Myth 6: Know Your Customer (KYC) Is Needed Multiple Times for Mutual Fund Investments

THE TRUTH:

It is true that KYC is a requirement for investing in Mutual Funds. You do not, however, require it more than once. KYC is a one-time requirement that all investors must follow. It must be submitted as verification. Through E-KYC, there are portals that are entirely paperless, simplifying this task.

Investors should finish this process in the long run because Mutual Funds have been known to provide excellent returns, along with tax deductions and the development of long-term wealth.

Myth 7: Mutual Funds Are Only Suitable for Long-Term Investments

THE TRUTH:

Although investing in Mutual Funds for the long term is advised, you can also do so for the short term. They also come in short-term and medium-term variations. Debt, equity, and a hybrid of the three are available in Mutual Funds and have varying maturities.

This means that every investor has funds with short, medium, and long durations that fit their time horizon and risk tolerance.

Different time frames for investing can each have its own benefits. For instance, if you invest for a long time in, say, an Equity Fund, you will receive high returns and it will aid you in achieving your long-term objective of building wealth.

A Debt Fund, on the other hand, is the best place to park your money because it offers higher returns than government-managed investments like FDs.

Myth 8: The Documentation Needed to Invest in Mutual Funds Is Extensive

THE TRUTH:

KYC (Know Your Customer) is a one-time process that can be completed through a SEBI-registered intermediate step (broker, Depository Participants (DP), Mutual Fund agency, and so on). You do not need to repeat the process when approaching another intermediary.

In order to invest in Mutual Funds, you must submit identity proof, address proof, and a recent photograph. Completing KYC once enables you to make investments in all Mutual Funds with ease.

Myth 9: You Are Not Old Enough to Begin Investing

THE TRUTH:

If you are young, it is all the more reason for you to invest. You must be wondering why. It is because you will have time to your advantage. The earlier you start investing, the more wealth you can accumulate. You will also have time on your side, which means that if the market falls, you will have enough time to redeem your money if you stay invested.

For example, you have invested Rs.20,000. Now, the market suffers a crisis, your investment value will decrease. However, if you remain invested for a long period of time the market will recover and you will receive a return on investment. It does not matter if you are a newbie in the world of investing. If you invest in mutual funds, your money is handled by the AMC or asset management company, and therefore, it is less risky.

Myth 10: Mutual Funds Invest Solely in Equity Markets

THE TRUTH:

Contrary to popular belief, Mutual Funds do not exclusively invest in equity and securities related to equity. There are also funds that only invest in debt. Equity, debt, and other money market instruments are some examples of the different categories into which Mutual Funds are divided.

Mutual Funds are divided into various groups, such as equity, debt, and other money market instruments. To reduce risk, some funds, like the balanced fund, invest in both equity and debt.

Myth 11: Professional Experts Handle My Money so I Do Not Have to Review My Mutual Fund Portfolio

Mutual Fund Professionals are not looking at your overall portfolio. So, either you hire an advisor to help you with it or keep reviewing yourself regularly. As with time, your goal changes, risk changes, and salary changes.

So you should periodically review your investments. The truth is that there are many ways to invest with little or no risk, so it doesn't make sense to invest without knowing what they are. 

THE TRUTH:

Your goals, market conditions and economic scenario change perpetually. To ensure that you are on the right track and not making losses, you must review your portfolio at regular intervals.