11 Myths about Mutual Funds
4 months ago
In today’s world mutual funds have emerged as a great option for investment. People are taking a keen interest in mutual funds and investing their money in it. A mutual fund provides a number of advantages such as diversification of risk, expert management, and liquidity, etc. but involves some disadvantages also. Mutual funds have become a buzzword among investors but there are some misconceptions or myths that are prevailing about it because of which people afraid to invest in mutual funds.
In this article, we are going to talk about some myths about mutual funds that are very common among investors.
So let’s start!!!
Mutual funds are only for experts
Mutual funds are only for experts is the first and foremost myth about mutual funds. Those who have expert knowledge about mutual funds can only invest in them. Well, that is not the case, everyone can invest in mutual funds who have the knowledge or who have not. The mutual funds are managed by expert fund managers so there is no need for you to have expert knowledge. Fund managers perform required research and analysis and invest your money.
You need high amount to invest in mutual funds
There is a myth about mutual funds that if you want to invest in mutual funds you must have a large sum of money. Well, that’s not true. Mutual funds provide a great flexible option for investors. You can start investing with only Rs.100 through SIP. So, there is no need to have large capital to invest in mutual funds.
Mutual funds only invest in equity products
It is not true that mutual funds only invest in equity and equity-related instruments. Mutual funds invest in a number of different securities like debt securities, gold, and money market securities such as Treasury bills, certificates of deposit, commercial papers, etc. so saying that mutual fund is an only equity product is totally wrong.
Need to have a Demat account
This is a myth about mutual funds common among people that you need to have a Demat account to invest in mutual funds. There is no prerequisite that you must have a Demat account for buying mutual funds. You can directly invest via brokerage, banks’ financial advisors, etc.
Mutual fund provides guaranteed returns
This is a myth that mutual funds provide guaranteed returns because as you know mutual funds are subject to market risk. Although the risk depends on the type of mutual fund. But there is risk involved so saying that mutual funds provide guaranteed returns is not right.
Mutual funds is only for long term investment
Although it is recommended to invest in mutual funds for the long term to earn better returns there is nothing like that mutual funds are only for long-term investment. There are many options such as liquid funds, short term debt funds, ultra short term funds, overnight funds which are suitable for the purpose of short term investment.
Mutual funds are more risky than stocks
It is a myth that Mutual funds are riskier than buying stocks. Because in mutual funds, investors can get the benefit of diversification leading to mitigation or elimination of risk while investing in shares there is the concentration of risk. Therefore, investing in an individual stock is riskier.
Equity or debt? Don’t choose both
There is a saying that you have to choose either equity or debt, you cannot invest in both. Well, that is not the case. There are options like hybrid mutual funds where the investment is done in both equity and debt. The proportion of allocation depends upon the goal of the scheme. So you can choose hybrid funds and avail the benefit of both equity and debt.
Mutual fund is the only aspirin to all your investment headache
This is totally a myth about mutual funds. Saying that mutual fund is the only solution to all of investing problems is totally wrong. It totally depends on your financial goals and risk capacity. As mutual funds are quite popular these days as a good investment options people just invest in it without understanding their financial goal and analyzing their risk capacity.
Schemes having good past performance always give good returns in the future also
Well, this is a baseless statement that the schemes having a good performance record will always provide good returns in the future also. Because as we know the mutual funds are subject to market risk, therefore schemes can underperform also. Thus, there is no guarantee that mutual funds having good performance records are always going to provide you better returns. Although it is good to look at the past performance of the scheme making your decisions solely based on it is not advisable. You need to understand the process behind the performance of the scheme.
Once invested, there is no need of reviewing of portfolio
This is the myth that after investing there is no need of reviewing it. Because you need to! Investment is not a onetime process you need to review it and assess that are you able to meet your financial goal or not. Although your money is managed by experts they are not reviewing your overall personal portfolio that’s why taking advice from a financial advisor is recommended or otherwise, you can review it yourself.