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.

Wrapping Up

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.