Mutual funds are incredibly popular investment vehicles, and hence, myths surrounding them are also in plenty. These myths can deter many investors from taking advantage of mutual fund investments. This article debunks some common myths and reveals the facts so that you can make informed investments.
Myth 1: Mutual funds are only for the rich
One of the widespread myths is that mutual funds require considerable investments. The reality is that
investors can begin with as low as ₹500 through the Systematic Investment Plan (SIP) mode, making mutual funds accessible to a wide range of investors. SIPs enable individuals to invest small amounts periodically and gradually increase their investments over time.
Myth 2: All mutual funds are high-risk investments
While some mutual funds carry high risk, there are multiple options for every level of risk tolerance. For example, debt funds are known for their low risk and stable returns compared to equity funds. Investors can spread their investments across various types of funds, building a portfolio that aligns with their risk comfort level.
Myth 3: Mutual funds guarantee returns
No investment vehicle can guarantee returns, including mutual funds. The performance of a mutual fund depends on market conditions and the fund manager’s choices. However, past data shows that well-managed mutual funds have delivered good returns over the long run, especially when investors align their investments with their goals and strategies.
Myth 4: Only market experts can invest in mutual funds
In mutual fund investments, professional fund managers manage research and daily operations, allowing investors to benefit from expert management without requiring specialised investment skills. Most mutual fund houses offer detailed documentation and customer service to help investors navigate the process.
Myth 5: Mutual funds are not liquid
Most mutual funds are designed with liquidity in mind. Investors can redeem their units and receive their money within a short period, usually within one or two business days. This liquidity makes mutual funds a suitable choice for investors who might need quick access to their funds.
Myth 6: Mutual funds are a “get-rich-quick” scheme
Mutual funds are highly recommended for long-term wealth creation rather than short-term profits. Although market volatility can affect short-term performance, the power of compounding and professional management can lead to considerable growth over the long term.
Myth 7: All mutual funds are the same
There are many types of mutual funds, each with a different investment objective and strategy. For example, equity funds prioritise growth, debt funds focus on stability, and hybrid funds offer a balance of both. There’s a mutual fund to match every investment goal and risk profile.
Conclusion
Knowing the reality behind these common mutual fund myths can help investors make informed decisions. With their flexibility and accessibility, mutual funds provide a convenient way to invest and build wealth, irrespective of an investor’s financial capacity or experience.
In case of any confusion, investors can take the help of financial advisors. By working with financial advisors and using available resources, investors can navigate the mutual fund market and align their investments to achieve their financial goals.