Myths and Facts about investing in Mutual Funds

Myth 1: Mutual Funds are only for long-term investing

Fact: You can do goal-based investing in mutual funds. Your goal tenure can be short-term, medium-term or long-term. Mutual funds have different schemes around various investment objectives and horizons. You can also invest in mutual funds for ultra-short goals (ultra-short debt funds) or emergency corpus creation (liquid funds).

Myth 2: Mutual funds are for experts

Fact: Mutual funds are professionally managed. The fund manager conducts advanced market research and makes necessary decisions related to the investments in the fund. Therefore, you need not be a market expert in investing in mutual funds.

Myth 3: Investing in mutual funds is the same as investing in stocks

Fact: Mutual funds invest in equities and debt, fixed income, gold, and money market instruments. You can invest in any of these assets or a combination of them through mutual funds, based on your goals, tenure and risk appetite.

Myth 4: Mutual funds with a lower NAV are better

Fact: The NAV or Net Asset Value of a mutual fund is the total market value of its underlying assets rather than its market price. In simple terms, the difference in a fund’s NAV between the two dates would indicate how that fund has performed during that period. Comparing the NAV itself to that of other funds might not be helpful. Therefore, considering the NAV comparison of mutual funds can be irrelevant while choosing a mutual fund.

Myth 5: You need a large amount of money to invest in mutual funds

Fact: Your single mutual fund SIP (Systematic Investment Plan) investment can be as low as ?500. Another striking feature of mutual funds investing is snackable and regular investing. Therefore, you can start with just a SIP of ?500 or a lump sum of ?5000 (?1000 subsequent lump sum additions) with no upper limit.

Myth 6: You need a Demat account for mutual fund investing

Fact: You only need a Demat account for investing in an ETF (Exchange-Traded Fund). You may also need it if you want to hold any mutual fund in Demat mode. You do not need a Demat account for investing in mutual funds otherwise.

Myth 7: Mutual funds give guaranteed returns

Fact: Returns in mutual funds are subject to their asset and risk profile. Mutual funds being a basket of assets whose returns are linked to the price of the underlying assets and may vary from time to time. Therefore, mutual funds cannot give guaranteed returns.

Myth 8: You should select a scheme with the best past performance

Fact: You should not consider past performance only as a parameter for future performance. This is because the markets and economic conditions keep changing. Therefore, it is better to look at the reasons for the fund’s performance, its underlying assets and the fund manager’s experience before investing.