Myths about Mutual Funds

The idea of investing in Mutual Funds can be confusing for first-time investors. There are several Mutual Funds to suit every type of investor, from the risk-takers to the ones who would prefer secure options. While Mutual Funds are a closely regulated investment option, there are also many myths doing the rounds about investing in Mutual Funds. We’ll tell you the truth behind some myths and clear the air.

1. You need a large sum to invest in Mutual Funds.

Whoever got this idea, had it all wrong. You can invest a sum as low as Rs. 500 in Equity Linked Savings Schemes (ELSS) or Rs. 1,000 every month in a Systematic Investment Plan (SIP).

2. Buying a top-rated Mutual Fund scheme gets you better returns.

You must know that Mutual Fund ratings tend to fluctuate. The ratings are based on the performance of the fund over a period of time. Just like the weather today may not be the same a week later, a Mutual Fund that is rated high today may not have the same rating a year later. Buying a highly rated fund does not guarantee better returns forever. You need to track and evaluate your investments to decide whether to stay invested or exit.

3. Investing in Mutual Funds is the same as investing in the stock market.

Many Mutual Funds have a mix of debt and equity. There are many types of Mutual Funds that range from low risk to high risk with varied types of investments. Put simply, there is a fund for every kind of investor.

4. Funds with lower Net Asset Value is better.  

This is a popular misunderstanding. A Mutual Fund’s Net Asset Value (NAV) is the market value of all its investments. Let’s give you an example.

If you invest Rs. 10,000 each in Fund A (with NAV of Rs. 20) and Fund B (with NAV of Rs.100), you will get 500 units of Fund A and 100 units of Fund B. Let us say both the funds have invested their entire corpus in the same stocks in similar proportions.

If both the stocks appreciate by 10% the NAV of the two schemes will also increase by 10% to Rs. 22 and Rs. 110 respectively. As a result, your investment increases to Rs. 11,000 in both cases.

Remember the current NAV of a fund has no impact on the returns.

5. You need a demat account to invest in Mutual Funds.

It’s simple to start investing in Mutual Funds. You don’t need a demat account. All you need to do is fill up an application form, attach a cheque of the required amount and then submit the completed form at the Mutual Fund office.

Now that you’re better informed about Mutual Funds, you don’t have to wait any longer to get started.  There’s still more to learn if you’re the curious type of investor.