Thanks to the internet, mutual fund investors are now smarter than ever. However, there are still several myths that keep a lot of new investors away from this dynamic investment option. Let us bust some of these myths in this post.
The AMFI and Asset Management Companies have done an excellent job of spreading awareness about mutual funds through several mediums in the past few years. As a result, mutual fund investors are now smarter and confident than ever before. On top it, the increasing access to the internet has also abundantly contributed to the popularity of mutual funds in India.
However, just like any other type of investment, there are still several myths plaguing the mutual fund industry. Many of these myths often keep a lot of investors away from this highly-rewarding investment option. To make you more aware and savvy investor, we are busting some of the most common mutual fund myths-
- You Need a Lot of Money to Invest in Mutual Funds: It is a common belief among people that you need a lot of money to start making money work for you. While this might be true for some other type of investment, this belief is completely wrong when we’re talking about mutual funds. With mutual funds, you can start investing with as little as INR 500 through SIP. Once started, you can then easily increase the SIP amount anytime.
- Only Experienced Investors Should Invest in Mutual Funds: Knowledge and experience are optional when it comes to mutual funds. The whole idea of investing money in mutual funds is to let professionals manage your money on your behalf. When you invest in a mutual fund, the fund will have a manager as well as a professional team to take the investment decisions on behalf of the investors. So, even if you’re new to investments, mutual funds are one of the easiest to begin options.
- Funds with Lower NAV are Cheaper: You pay the NAV of a mutual fund for purchasing 1 unit of that fund. The same is true when you want to sell the mutual fund units. However, the NAV itself does not define the performance of a fund. A lot of people believe that funds with lower NAV have higher returns potential.
But the reality is that the Net Asset Value (NAV) is nothing but the book value of the fund. It is calculated by dividing the total market value of the portfolio of a fund by the total amount of outstanding units of the fund. In no way, the NAV can tell anything about a fund’s current or future performance.
- When You Invest in Mutual Funds, You’re Investing in the Stock Market
Not True! There are many different types of mutual funds and not every type of fund invests your money in the stock market. For instance, there are debt funds that are not related to the stock market in any way. While debt funds too have their own risks, they’re considerably safer than equity funds that invest in the stock market.
- One Should Only Select Top-Performing Funds: One of the most common mistakes among people new to mutual funds investment is that they only want to invest in top-performing funds to generate higher returns. But you should always remember that the recent or past performance of a fund does not provide any kind of guarantee for their performance in the future.
While it is possible for the fund to continue performing better than other funds, there is no guarantee. So, you should always prefer funds that offer stable returns over a fund that has only performed in the last one year or one month.
While there are many more myths surrounding mutual fund investments, these are some of the most common. Now that you know these are not true; start learning more about mutual funds and begin your investment journey as soon as possible.