There are many myths surrounding mutual fund in India. Read ahead for more information on 15 common myths about this investment option.
1. Zero-Risk of Losses
Fact: There is no such thing as zero risk in the world of investments. Investing without doing proper research and analysis can lead to losses even in mutual funds.
2. High One-Time Investment Needed
Fact: MFs allow you to invest small sums over a long period of time for a safer investment experience. It is incorrect to say you need to make big one-time investments to earn good returns.
3. Zero Scope for Short-Term Profits
Fact: All investments offer scope for higher returns over the long run. However, this does not mean your mutual funds India investments cannot provide short-term profits. This depends on the choice of your funds.
4. Restricted to Domestic Markets
Fact: Online mutual funds allow you to invest in international markets as well. In fact, this is probably the safest way to invest in foreign markets.
5. Avoid High-NAV Funds
Fact: A high NAV does not mean the fund is expensive. Instead, consider all other factors including past performance, future prospects, and quality of fund management before taking a decision.
6. High-NAV Means Growth Prospects
Fact: A share with a low unit price is not necessarily a bad investment. Similarly, the NAV cannot be used as an indicator for future growth prospects of the fund.
7. NFOs Preferable to Existing Funds
Fact: New Fund Offers allow you to start from scratch. However, this does not mean NFOs will always offer better returns as compared to existing funds. A lot depends on the investment strategy adopted by the fund manager.
8. Past Determines the Future
Fact: Funds investing in the energy sector may have earned good returns due to high crude prices. With a huge fall in crude prices, these funds may not generate good returns in the future. Past performance is no proof that the fund will do well in the future as well.
9. Share Investments are Cheaper
Fact: MF investments involve charges at time of purchase and sale, asset management fees and other charges. However, share market investments too involve payment of brokerage and other charges. Focus on risk mitigation and comparative benefits when comparing costs of investing in mutual funds.
10. Assured of Guaranteed Returns
Fact: Mutual funds don’t offer guaranteed returns. There is always the risk of losses when you purchase mutual fund units.
11. Demat Account is a Must
Fact: While beneficial, it is not compulsory to have a Demat account when buying mutual fund units. You can include MFs in your investment strategy even if you don’t own a Demat account.
12. No Scope for Diversification
Fact: Mutual funds allow you to create a diversified portfolio that includes high-risk high-growth equity investments, long-term low-risk debt instruments, as well as short-term money market securities.
13. Buy and Forget
Fact: Such a strategy is dangerous irrespective of the choice of your investment option. It is advisable to track the performance of your mutual fund and take portfolio decisions as and when necessary.
14. Very Low Rate of Returns
Fact: Investing in the right fund can help your money grow very quickly. There have been instances when mutual funds have beaten other ‘high return’ avenues like the share market.
15. Unsuitable for Beginners
Fact: Low risk, access to expertise of fund managers, and the option of buying units in a slow and steady manner makes mutual funds investment ideal for first-time investors.
Investing in mutual funds is a smart way to generate good returns from equity and debt assets without actually buying shares or debt securities. Make sure you are aware of all relevant facts about this option before finalizing your investments.
To know more, visit HDFC securities today!
