Myths about investing in Mutual Funds
One of the biggest hurdles in the journey of investing is getting over the myths that bear no foundation or truth. But we believe it because everyone does. Here are some of the most common myths and facts of investors about investing in mutual funds.
Mutual Funds need large investment
Fact: Mutual funds do not need large amounts to start with, you can start with even as low as Rs.500 per month, through a tool called Systematic Investment Plan (SIP) in a mutual fund wherein you are allowed to invest a regular monthly instalment in the fund.
Even lumpsum investments are allowed for minimum of Rs.5000/- with no upper limit. Units are allotted when amount invested and folio number is generated. In fact, the earlier you start investing, the better it would be for your money as it would get to undergo compounding for a longer period.
You need a Demat Account to invest in Mutual Funds
Fact: You do not need a demat account to invest in mutual funds. By filling up the application form and ensuring that you are KYC compliant, you can choose the fund and submit a cheque to make the investment.
Holding mutual fund units in demat mode is optional, except in respect of Exchange Traded Funds. However, to ease the process of investing and get better guidance, you may engage a financial adviser throughout.
Only experts can invest in Mutual Funds
Mutual Funds are professionally managed by the Fund Managers after proper market research. A Mutual Fund is an inexpensive way for investors to get a full-time professional fund manager to manage their money. Mutual funds are mainly meant for common investors who may lack knowledge or skill set to invest in securities market.
One needs to invest in several mutual funds to avail the benefit of diversification
Fact: Mutual funds by itself invest across asset classes such as equity, debt and money market instruments, which provide investors with the benefit of diversification of risk.
In mutual funds, investors can diversify their portfolio basis their risk appetite and alter it from time to time, whenever and wherever necessary.
Investments in Mutual Funds has to be when NAV is lower.
Fact: One needs to keep in mind that the NAV of a scheme is a reflection of the market value of the underlying shares held by the fund on any day. Depending on the scheme’s investment strategy the fund managers buy and sell the shares whenever they deemed appropriate. If the fund manager feels that a particular stock has peaked, he can choose to sell it.
Buying top rated mutual funds guarantees better returns
Fact: Mutual fund performances are subject to market risks and may vary from time to time. Thus, it is not certain that a fund that may have performed well in the past will do so in the future as well. Investments in mutual funds need to be tracked and reviewed from time to time with its benchmark to ensure better performance.
Mutual funds are unsuitable for beginners
Fact: Any investment, if done without appropriate knowledge can be dangerous. Mutual funds offer high transparency with respect to where and how the funds of the investors are invested. New investors could consider starting an SIP in a mutual fund, through which they could invest small regular amounts every month and gradually increase overtime.
Financial advisers should be consulted for professional advice in investing, reviewing and tracking the performance of the mutual funds.
Being an equity product investment in mutual fund is same as investing in stock market.
Fact: Mutual Funds invest in equity, corporate bonds, government bonds and a money market instrument such as Treasury Bills, Commercial Papers, Certificate of Deposits, Collateral Borrowings & Lending Obligations, etc.
Some of the instruments are not available to retail investors due to big ticket size and hence mutual fund investors could participate in such investments through mutual fund schemes.
