Mutual funds are subject to market risks. Everyone knows this. But what you don’t know is that they’re also subject to risky myths flooding the market. These myths tend to corrupt the minds of the layman and prevent them from enjoying the benefits one can gain under the schemes of mutual investment. Worry not, though, it is easy to get out of these weird misconceptions. Here are 7 mutual fund investment myths which are very common amongst the people. Try not to fall for these mutual fund investment myths and if you have, read this and let the bubble be burst.

Mutual funds investment myth

Myth: Only large amount can be invested

Fact: Both small and large investments are allowed

It is absolutely silly for this word to have spread that mutual funds require investors to invest large amounts of money, especially when mutual funds means a pooled fund by combining resources from multiple investors. Moreover, with more and more equity-oriented schemes and Systematic Investment Process (SIP), the investors are eligible to start their investments as low as Rs. 500 or Rs. 1000. All one needs to do is to carefully research the mutual fund investment.

Myth: There are no short-term based profits in mutual funds

Fact: One can avail both short-term and long-term profits

The basic motive for investing in the mutual funds is to make some profit on the invested money in form of returns. Now, most people tend to think (out of nowhere) that only long-term profits are provided under mutual fund investments while various forms of mutual fund schemes have been making provisions for even short-term profits as well as profits at regular intervals. This enables the investors not only to prepare for major expenses in their lifetime but also to ensure a certain source of income on a regular basis.

Myth: Investor only has to invest and leave everything upon the Fund Manager

Fact: Investor should actively monitor the investment regularly

It is true that the mutual fund investments are managed by the fund managers in its entirety, but that doesn’t mean that an investor has no role, after all the first right over the money invested is investor’s only. As an investor, it is possible that a lot of opportunities come up where crucial calls have to be taken. If the position of the investment isn’t decently tracked by the investor, there may be grave consequences.

Myth: Rating of the scheme is the deciding factor

Fact: It is only a guiding factor, not the deciding factor

Ratings of a scheme essentially determine the performance of the fund till that date and not in the future. Thus, it is to be understood that not all high rated schemes may perform similarly well while all low rated schemes may not perform so bad. There’s always a scope of change in the mutual fund investment, which is why this should only be considered one amongst the many factors while choosing the fund.

Myth: Guaranteed Returns

Fact: Returns are not guaranteed per se, while the existing NAV of a fund has no impact on the returns

There always exists a risk of loss, much like the prospect of gaining benefits. The capacity of the fund to yield return never rests upon the current NAV of the fund. As per a popular example, suppose you invest Rs. 1 lac in 2 stocks each, where the first has a NAV of Rs. 1500 while the latter has a NAV of Rs. 30. In case of an increase in the value of the fund by 20%, the NAV of first becomes Rs. 1800, while that of the latter becomes Rs. 36.

Myth: A Demat account is necessary to invest in Mutual funds

Fact: Demat accounts aren’t necessary, many other ways are possible

Demat accounts may be quite fruitful but they’re not an absolute requirement to invest in mutual funds. It can be done through distributors as well as by direct purchasing. Which has become all the more popular now that the online services of mutual funds have popped up.

Myth: Investment in mutual funds is exactly the same as investing in stock markets

Fact: Investment in mutual funds cover stocks, as well as other instruments like securities and debt

Investment via mutual funds spans across various markets like the stock market, debt market, money market. In fact, a lot of different sectors become a target for investment under the mutual funds. This is one reason why the risk factor relatively lowers down as compared to the traditional investment strategies.

Mutual fund investment myths cloud the judgment of the people considering investing in mutual funds. Thus make them miss out on potential benefits that they could have availed under the different schemes. Finbucket aims to beat those myths with facts and help you identify the right kind of scheme to begin your mutual fund investment journey.

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