It is not just the lightning speed reading of ‘Mutual Funds are Subject to Market Risk, Please Read the Offer Document Carefully Before Investing’ that tends to keep the investors at bay. There are a number of statements, rather notions that have been keeping both new and experienced investors away from the world of high return Mutual Funds Market. While some of them like you will only get a maximum return when you invest for long-term or that it needs the patience to invest in mutual funds are true, the majority of others are not. In this article, we will be looking into the 7 most heard myths that are further away from the truth and need to be busted. Without any further delay, let us begin.
1. Lower the NAV, Cheaper the Fund
It is usually believed that the lower the Net Asset Value, the cheaper the fund, and the greater the returns on the mutual fund. But, the fact is that the NAV has nothing to do with the present market value of the Mutual Fund portfolio. In fact, the NAV generally gets higher with the market value growth over a period of time.
2. (The Age Old) You should be an Expert to Invest in Mutual Funds
A major portion of the newbie investors avoids Mutual Fund Investments because they believe that the investment type is too complicated to understand and get into. And, this is another reason that keeps people away from investing in them.
However, the reality is entirely different.
When you open a Mutual Fund account through a bank, you are partnered with an expert (only in Regular Mutual Fund Investments) who knows the industry and is well researched on which scheme would get the most results.
3. You Would Need a Huge Amount in your Bank Account to Invest
This one myth is the biggest one out there floating on the internet. It is a very common belief that for someone to invest in Mutual Funds, they should have a lot of funds in their bank account (pun intended). However, the reality is that you can invest in SIPs (a popular Mutual Fund type) with as less as only Rs. 500 per month! Even if your fund increases at 12% and you are investing Rs. 2,000 every month, the amount would become Rs. 2 Lakhs at the end of 20 years. What matters is that you keep investing with discipline and think of Mutual Funds as a long-term plan.
4. (This is a Shocker) Debt Mutual Funds Get Tax Exemption
The biggest reason that people invest in Mutual Funds is that of the belief that they would get an exemption from tax and would be able to save some serious bucks that otherwise would go to the government. But, in reality, only those Mutual Fund Investments are exempted from tax, which is equity-based and not debt based investments.
5. Five Star Mutual Funds Will Never Decline in the Market
More often than not, you will find five-star ratings next to a Mutual Fund scheme on trading websites. And it is a general belief that more the star ratings the better the returns on the mutual fund would get. However, the ratings depend on a number of factors. And depending on the volatility factor in return and the risk-adjusted performance, the star rating that is now 5 or 4 stars, could change anytime.
So, never invest in the mutual fund scheme just by the star ratings. It can be a huge mistake.
6. Share Investment is same as Mutual Fund Investment
Another popular myth which is again farther away from the truth is that investing in the share market is the same as investing in Mutual Funds online. The truth is that there are different types of Mutual Funds in India– bonds, shares, debt, equity, and a lot more.
Although, it is true that when it comes to the risk factor, Mutual Fund Investment is no less than Stock investment, yes, the severity is still a lot less in case of Mutual Fund than in Stocks and Share Investment.
7. There are Guaranteed Returns
Mutual Fund Investments are linked to the market and because of this, the returns are not guaranteed. With all the underlying assets varying from government securities too high-risk equity, funds are open to the market volatility and the whole macroeconomy scenarios. So, it is not just the equity mutual funds that are risky, the returns from debt based Mutual Funds can fluctuate as well.
So here were the 7 Mutual Fund myths that have been keeping the investors away from investing in them on full scale and are unable to make the most of them. Have you been a victim of one of these myths? Let us know in the comments below.