Mutual funds, also known as MFs, are amongst the most popular investments chosen for fulfilment of financial goals. Owing to the benefits it offers, mutual funds are often preferred over other traditional investments such a fixed deposits, or small savings schemes. A recent BankBazaar survey titled ‘Savings Quotient’ highlighted this trend. This year’s survey, which included 1675 respondents across India between the ages of 22-45 years, reported that mutual funds are the second most-preferred investment in India, chosen by 54% of the survey respondents. Despite their rising popularity, there are still certain myths that prevail around mutual fund investments, clouding an investor’s judgement.
If you are planning to start investing in mutual funds, here are some myths you must steer clear of:
Mutual fund investments require extensive financial knowledge
Most mutual funds are managed by financial experts known as fund managers. These trained investment experts manage and implement investment strategies on behalf of a fund house based on market movements. So, you needn’t be an expert to invest in mutual funds.
You need a lot of money to start a mutual fund investment
One of the reasons why mutual funds are popular is because they are accessible. A Systematic Investment Plans (SIP) which is one of the modes of MF investing, can be done with amounts as low as Rs.500 per month. In case of lump sum investments, the minimum amount may vary based on the type of mutual fund, but typically ranges around Rs.5,000 and upwards.
Mutual funds offer guaranteed returns
Mutual funds are market-linked investments and their performance can fluctuate based on market movements. As a result, the returns offered by mutual funds cannot be guaranteed and tend to rise and fall based on the market’s performance. This, however, is more relevant in case of equity funds that primarily invest in stocks and have the potential to offer inflation-beating returns. Debt funds, on the other hand, invest a significantly lower portion in equity funds and may be able to offer more stable but lower returns in comparison to equity funds.
Mutual funds require KYC multiple times
When investing in mutual funds, the fund house you are investing with will require you to complete the KYC verification process. This is a one-time process which does not need to be repeated unless you are investing with a different fund house. If you are investing in mutual funds via a financial investment advisor, they may require you to carry out the KYC process once for investments with multiple fund houses. With the e-KYC facility, you can also complete the KYC process online.
Mutual funds are not ideal for young investors
When it comes to investing, young investors have a significant advantage – time. With time on their side, younger investors have a higher risk tolerance than investors in their 40s or 50s. As a result, mutual funds, especially equity funds that can provide inflation beating returns, can be ideal for such investors. Moreover, younger investors have a longer investment tenure ahead of them and can take the maximum benefit of compounding to build wealth.
Top-rated mutual funds guarantee higher returns
Mutual fund ratings are done based on multiple factors such as the fund’s performance during different market periods, the fund house it belongs to, the fund’s manager’s expertise, it’s asset allocation, and inflation-based returns. This rating can change with a change in any of the determining factors. Thus, investing in a top-rated fund does not guarantee higher or better returns.
Mutual funds only invest in equity markets
There are different types of mutual funds available today that are suited for different types of investors. Equity mutual funds tend to carry a higher risk as they invest primarily in stocks. Debt funds invest in debt instruments such as government securities, debentures, bonds, and corporate FDs. Though they carry a comparatively lower risk compared to equity funds, they offer lower returns as well. Hybrid mutual funds are yet another type of mutual fund that invests in a mix of equity and debt instruments, thus balancing the risk.
Adhil Shetty is the CEO of BankBazaar.com
© The Indian Express Pvt Ltd
First published on: 08-12-2023 at 11:26 IST
