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10 Myths about Mutual Funds
Mutual funds are widely regarded as one of the best stock market investment options. However, many investors may be apprehensive about investing in them. One of the key reasons for this hesitancy is that there are several myths about mutual funds circulating among investors today. Since these myths prevent investors from leveraging the potential of mutual funds to help create long-term wealth, it is important to debunk them from time to time. So, here are some of the most common mutual fund myths and the truth behind them.
Debunking popular Mutual Fund Myths
Myth 1: You Need A Substantial Amount Of Money To Invest In Mutual Funds
A major misconception about mutual funds is that you need a significant amount of capital to invest in them. However, this is simply not true. Depending on the fund, the minimum amount of lumpsum investment that you would have to make can be as low as ₹5,000. In the case of Systematic Investment Plans (SIP), the minimum investment is even lower. You can start an SIP in a mutual fund by contributing as low as ₹500 (or even less) per month.
Myth 2: You Must Be A Skilled Expert To Invest In Mutual Funds
This is one of the most common mutual fund myths that many investors believe in. Fortunately, this is also untrue. Most mutual funds are actively managed by an experienced team of fund managers who are responsible for taking investment decisions based on market movements. So, even if you’re new to the stock market, you can invest in such well-managed mutual funds without any hesitation.
Myth 3: Mutual Fund Investments Provide Guaranteed Returns
Mutual funds typically do not provide guaranteed returns. This is because most mutual funds invest in market-linked instruments such as equity shares, whose performance is primarily dependent on market movements.
That said, debt funds, which invest a much smaller portion of their capital in equity, may offer more stable returns than equity funds, which invest predominantly in the equity market. However, equity funds have the potential to offer inflation-beating returns over the long term.Myth 4: Mutual Fund Investments Require A Demat Account
Though it is advisable to have a demat account, it is not a mandatory requirement for mutual fund investments. Several Asset Management Companies (AMCs) and fund houses allow you to invest in their mutual funds physically, without a demat account. In such cases, you are given a physical certificate containing details of your mutual fund investments.
Myth 5: Mutual Funds Require KYC More Than Once
Every fund house requires you to complete (KYC) verification process when investing for the first time. However, this KYC verification is only a one-time process. That’s not all. You can also choose to complete the verification process online using the e-KYC facility.
Myth 6: Mutual Funds Are Long-Term Investments
One of the myths about mutual funds is that they’re only suitable for the long term. While financial experts do suggest investing in them over the long term, not all funds are designed that way. There are many short-term and medium-term mutual funds that you can invest in. In fact, there are also overnight funds, which, as the name indicates, have extremely short investment tenures.
Myth 7: The Mutual Fund Documentation Process Is Extensive
On the contrary, the paperwork required to invest in a mutual fund is very minimal. A copy of your identity proof, address proof, a recent passport-size photograph, a duly filled mutual fund application form and a KYC form are all you need to get started.
Myth 8: Mutual Fund Investments Are Not For Young Investors
This is another one of the many mutual fund myths surrounding the investment option. However, the fact is that mutual funds are the perfect option for young investors. Firstly, when you’re young, your risk appetite is usually high and you can afford to take risks. This makes equity mutual funds suitable choices to consider. Secondly, when you start investing early, you can opt for a longer tenure too, potentially increasing the returns on your investment.
Myth 9: Mutual Funds Invest Solely In Equity Markets
Not all mutual funds invest in the equity market. There are also debt mutual funds that invest in debt instruments like bonds, debentures, government securities and corporate FDs. In addition to this, you also have hybrid mutual funds that invest in a mix of both equity and debt instruments.
Myth 10: Mutual Fund Portfolios Don’t Need To Be Reviewed.
Just because a mutual fund is managed by professionals, it doesn’t mean that you shouldn’t pay attention to your portfolio. As a matter of fact, you should periodically review your investments. Doing so will allow you to ensure that the performance of the funds is in line with your financial objectives. And if you find that the performance isn’t aligned with your goals, you can take timely corrective action. This is only possible if you periodically review your portfolio.
Conclusion
In addition to the Mutual fund myths mentioned above, there are many others that you need to be wary of. As an investor, you also need to ensure that you don’t let these myths dissuade you from investing in mutual funds. When done right, mutual fund investments have the potential to create wealth over the long term.
If you’re interested in investing in mutual funds, the m.Stock trading app can help. Its user-friendly interface has plenty of features designed to make mutual fund investment as hassle-free as possible. Additionally, with m.Stock, you can invest in a wide range of mutual funds at zero brokerage.
SIPs let you invest small amounts regularly, making it easier to stay consistent with your goals. With time, your money grows faster through compounding, helping you get the most out of your investments. Try our SIP Calculator to see how your money can grow and make smarter plans for your future.
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Can Mutual Fund Schemes Invest in Upcoming IPOs? - H1 Initial Public Offerings (IPOs) have become a buzzword among investors looking for high-growth opportunities. Whether it’s a unicorn startup going public or a reputed company entering the equity market, IPOs attract substantial interest. But what about mutual funds — can they participate in IPOs? And if yes, how does it impact you as an investor in a mutual fund? This article explores the role of mutual funds that invest in IPOs, the process behind such investments, and how you can benefit from this strategy. You’ll also gain insights into how fund managers evaluate IPO opportunities and which mutual funds are more likely to invest in them. Role of Mutual Funds in Equity Markets - H2 Mutual funds play a vital role in India’s equity markets. Managed by professional fund managers, these pooled investment vehicles collect money from multiple investors and allocate it across a portfolio of stocks, bonds, or other assets based on the fund's mandate. In the context of equity investing, mutual funds: Provide diversification to small investors Help in price discovery and market depth Act as long-term institutional investors Reduce risk through strategic asset allocation Given their market presence and influence, mutual funds also participate in IPOs, often subscribing to large portions of new issuances. But this activity is more nuanced than simply bidding for shares. Are Mutual Funds Allowed to Invest in IPOs? - H2 Yes, mutual funds in India are allowed to invest in IPOs — both in the primary market (where shares are first issued) and in the secondary market (where stocks are traded after listing). This means mutual funds can apply for shares during an IPO’s book-building process just like retail investors, high-net-worth individuals (HNIs), and institutional investors. SEBI regulations allow fund managers to allocate a portion of the fund’s assets to IPOs, provided the investment aligns with the scheme's objectives and risk profile. For instance: A large-cap fund may only invest in IPOs of companies expected to be included in large-cap indices A multi-cap or flexi-cap fund has more flexibility to take exposure across market capitalisations, including IPOs An ELSS fund (Equity-Linked Savings Scheme) can also participate in IPOs if it aligns with its tax-saving and equity investment objective So, the short answer is: Yes, mutual funds can and do invest in IPOs — but not all funds, and not always. Why and When Do Mutual Funds Invest in IPOs? - H2 Investing in IPOs offers mutual fund managers several strategic advantages, including: 1. Access to Early Growth Potential - H3 Many IPOs are of young, fast-growing companies. By investing early, mutual funds aim to capture the growth upside before the stock gains mainstream popularity. 2. Price Arbitrage Opportunities - H3 If a mutual fund believes that the IPO is underpriced relative to its intrinsic value, it may invest with the intent of benefiting from listing gains or long-term appreciation. 3. Portfolio Enhancement - H3 Some IPOs bring fresh sector exposure or innovation to the market. Fund managers may invest to diversify or rebalance the portfolio with new-age businesses, like fintech or EV startups. 4. Long-Term Bets - H3 Fund managers often look at IPOs with a long-term lens. The goal isn’t always listing gains but building a position in a company expected to perform well over years. 5. Demand and Liquidity Trends - H3 In bullish markets, IPOs tend to be oversubscribed and see strong listing premiums. 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Promoter and Management Track Record - H3 A critical evaluation is made on the credibility, governance standards, and historical performance of the promoters and top management. 4. Utilisation of IPO Proceeds - H3 Fund managers study how the company plans to use the funds—whether for debt repayment, expansion, or general corporate purposes. 5. Macroeconomic and Sector Trends - H3 Sectoral outlooks, regulatory policies, and broader market sentiments also influence IPO investment decisions. 6. Anchor Book Participation - H3 Strong interest from anchor investors (like global funds or sovereign wealth funds) signals confidence in the issue, making it more attractive for mutual fund participation. Best IPO Mutual Funds: What to Look For - H2 If you're keen on gaining exposure to IPOs through mutual funds, it's important to choose the right type of fund. While there’s no official category called “IPO mutual funds,” some schemes actively participate in upcoming IPOs. Here’s what you should look for when selecting such a fund: 1. Fund Category and Investment Mandate - H3 Start by checking the category of the fund. Flexi-cap, multi-cap, and mid-cap funds generally have more leeway to invest in IPOs. These funds are not restricted to a single market capitalisation and often aim to capture high-growth opportunities, making them ideal for IPO exposure. 2. Track Record of Participating in IPOs - H3 Review the fund’s portfolio history. Some mutual funds consistently allocate a portion of their assets to new listings. You can find this information in the fund’s monthly factsheet or portfolio disclosure. Look for funds that have a pattern of investing in IPOs over time—not just as a one-off move. 3. Fund Manager's Experience and Strategy - H3 A skilled fund manager makes a significant difference. The manager's ability to evaluate IPO valuations, industry potential, and company fundamentals is crucial. Look for funds managed by professionals with a proven track record in equity investing and a sound IPO selection approach. 4. Diversification and Risk Management - H3 An ideal fund won’t rely heavily on IPOs alone. Instead, it will use IPO investments as part of a broader equity strategy. Ensure that the fund holds a well-diversified portfolio alongside its IPO allocations to reduce volatility and balance risk. 5. Consistent Performance Over Market Cycles - H3 While past performance isn’t a guarantee of future returns, funds that have consistently performed well across different market cycles often reflect strong management and strategy. Look at long-term performance metrics like 3-year or 5-year returns instead of just recent gains. 6. Transparency and Reporting - H3 Good IPO-investing funds are transparent about their holdings. Choose funds that provide detailed disclosures about their portfolio, including new IPO allocations, so you can track how your money is being deployed. 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