Mutual Funds Myths which You must have knowledge

Investing in mutual funds can be a great way to grow your wealth, but it’s often surrounded by misconceptions that can deter potential investors. Let’s debunk some of the most common myths about mutual funds. see below for the 7 Myths About Mutual Funds That You Should Ignore in detail.

7 Myths About Mutual Funds That You Should Ignore

Many people mistakenly believe that a Systematic Investment Plan (SIP) is an entirely different investment product from mutual funds. This is incorrect. SIP is simply one method of investing in mutual funds. There are two primary ways to invest in mutual funds: lump-sum investments and SIPs. With a lump-sum investment, you invest a large amount of money at once. Conversely, an SIP allows for regular, smaller investments into a chosen fund. Once you set up an SIP mandate, a predetermined amount is automatically deducted from your savings account on a specified date each month.

For instance, if you have a SIP of Rs 1,000 in Fund A on the 10th of every month, Rs 1,000 will be automatically deducted from your bank account and invested in the fund on that day.

Myth #2: You Need A Lot Of Money To Invest In Mutual Funds

A prevalent misconception is that mutual funds are only accessible to individuals with substantial incomes. This is far from the truth. Many fund houses have minimized the entry barrier by reducing the minimum investment amounts. You can start investing in mutual funds with as little as Rs 100 through SIPs and Rs 1,000 for lump-sum investments.

Myth #3: Investing In Mutual Funds Means Investing In The Stock Market

While mutual funds do invest in stock markets, this isn’t the whole picture. There are categories of mutual funds that don’t involve equity markets at all. Debt mutual funds, for example, invest in bonds (corporate and government) and money market instruments such as treasury bills, commercial papers, certificates of deposit, and collateral borrowing & lending obligations (CBLO). These funds aim to protect capital while providing stable returns.

Myth #4: You Need To Be An Expert To Invest In Mutual Funds

Direct investment in equities may require expert knowledge, but mutual funds are designed to be accessible to everyone. You do not need to be an investment expert to invest in mutual funds. Professional fund managers, backed by a strong research and investment team, manage these funds. This makes it an affordable way to have experts manage your money.

Myth #5: Mutual Funds Are Only For Long-Term Investments

It is commonly believed that only long-term investors should consider mutual funds. While it is true that equity mutual funds require a longer horizon of more than five years, this doesn’t apply to all mutual funds. Debt funds, particularly overnight funds, liquid funds, and ultra-short-term funds, allow you to park your money for shorter periods ranging from a day to three months. Your investment choices should align with your investment horizon and objectives.

Myth #6: Top-Rated Mutual Funds Guarantee Better Future Returns

Relying solely on the star rating of a mutual fund to predict future returns is a flawed strategy. Ratings are dynamic and subject to change. A fund rated five stars by various organizations does not guarantee better returns compared to other funds. There have been instances where highly-rated funds have suffered due to credit defaults of the companies in which they invested.

Instead, the performance of a mutual fund should be tracked against its benchmark. Periodically evaluate the fund’s performance relative to its benchmark and other funds in the same category to decide whether to stay invested.

Myth #7: Investing In Funds With Low Net Asset Value (NAV) Is Better

Another common myth is that investing in mutual funds with a low unit price or NAV is beneficial because the appreciation will be greater. This belief is misguided. The NAV of a fund reflects its per-unit market value. Investing based on NAV alone is not a reliable indicator of future performance. Instead, focus on the overall performance, consistency, and alignment with your investment goals when selecting a fund.

Misconceptions about mutual funds can prevent you from making informed investment decisions. By understanding and ignoring these myths, you can approach mutual fund investments with greater confidence and clarity. Whether you have a small amount to invest or are looking to diversify your portfolio, mutual funds offer flexible options tailored to various financial goals and timelines.

It’s important to do your research, consult with financial advisors if needed, and make decisions based on factual information rather than myths. This is the brief information about the 7 Myths About Mutual Funds That You Should Ignore in detail.

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