Top 10 Mutual Fund Myths Busted Once and For All

There aren’t many financial topics with as many mutual fund myths as mutual funds themselves. Despite being one of the most recognisable investment options, they continue to be misunderstood. It is because of these misunderstandings that many people hesitate to invest in mutual funds. When this happens, people often miss out on opportunities that investments usually provide. When you identify and address these myths in a timely manner, it is possible to approach investments with clarity and confidence.

Top 10 Mutual Fund Myths Busted

Let us break down numerous myths surrounding mutual funds that prompt many people to stay away from them and replace them with facts:

1. Mutual funds are risky—Though market-linked funds carry some risk, not all of them are volatile. Risk-averse investors can look towards debt funds, hybrid funds, and conservative options.

2. Mutual funds require a large sum – Many people believe this myth to be true. However, it is far from the truth. SIPs (Systematic Investment Plans) are available for investors to invest as low as a few hundred rupees each month.

3. Returns are guaranteed – No market-linked investment can promise you returns. One of the most common mutual fund myths that discourages realistic investing is the promise of guaranteed returns.

4. A demat account is needed – The reality is that you need not have a demat account for mutual funds. They can be purchased directly from fund houses, banks, or apps.

5. All funds are the same – All mutual funds are not the same. They are all designed to serve different goals. Equity funds, balanced funds, and debt funds, for example, have varied levels of risk associated with them.

6. Mutual funds are expensive – Though brokerage fees are involved, they are far lower compared to other investment options.

7. Mutual funds can only be handled by experts – This is not true at all. In fact, mutual funds are designed to be simple and beginner-friendly.

8. SIPs are the only way to invest – Besides the regular SIPs, investors can invest lump sum amounts. It all depends on their goals.

9. Funds are locked in for years – This is incorrect. Only tax-saving funds have lock-in periods. Other mutual funds can be withdrawn as and when required.

10. Mutual funds are only for long-term goals – No doubt, using mutual funds for long-term goals is beneficial, but even for short-term goals, certain mutual funds can be used. For example, debt funds and liquid funds can be used to achieve your short-term goals.

Why Misconceptions about Mutual Funds Persist

Several mutual fund misconceptions thrive despite people having access to a lot of information. This is indeed a sad trend. A major reason for this is that people confuse these funds with the stock market, assuming that both of them are equally risky. However, the fact is that mutual funds are less volatile than the stock market, as they are diversified and professionally managed.

Another reason why misconceptions persist is because of hearsay. More often than not, investors rely on social media or friends for their investments. These media spread myths about mutual funds without any verification. Sometimes, outdated information, like stories surrounding stock market crashes, also adds to misconceptions about mutual funds. Investors need to be aware and educated if they are to change their opinions about the misconceptions.

Ways to Separate Facts from Fiction

By relying on professional guidance and credible sources, you can easily clear all the myths. What also helps in this regard is reading official fund fact sheets, expense ratios, and historical performances. They all present a realistic picture to you.

The best approach for investors would be to set clear financial goals and then match them with the correct fund. These habits ensure that mutual fund myths debunked once and for all never make their way into your mind, ever again.

Final Thoughts

There is a lot of noise surrounding mutual funds. Therefore, understanding the truth behind mutual fund myths goes a long way in securing your future. When you separate facts from fiction and when you follow a disciplined approach, you will be taking the right steps towards wealth creation.