7 Myths About Mutual Fund Investments

Mutual Funds are convenient way to invest in stock and bond market. Mutual fund scheme collects money from investors and buys and sell stocks collectively. There are various types of funds in which you can invest depending on the risk capacity. Here are few common myths which acts as a barrier to achieve your investment goals.

1) Myth: Mutual Funds are for Experts

As most of the people think that understanding mutual fund concepts are difficult and they believe that it is only for financial experts to deal with mutual funds.

This is not true at all. Unlike the equity market, you don't have to decide on when to buy or sell shares, here the fund manager will do it for you. He will help you decide where to invest your money.

2) Myth : Mutual Funds are only for the long term

There are various short-term schemes where you can invest from a day to a few weeks. However, long-term investments have a slight advantage, but that doesn't mean that Mutual Funds are only for such investors.

3) Myth: Mutual Fund Is an equity product

Generally, as people hear the two words together most of the time, they associate mutual funds with equity funds, but this is not entirely true. Mutual Funds invest in a various instruments ranging from equity to debt, depending on the individual risk capacity. To risk averse people there are debt instruments with different maturity.

4) Myth : Mutual Funds with a Rs. 10 NAV are better than Mutual Funds having a Rs. 25 NAV

One should not concentrate only on "low" NAV and more number of units, it is worthwhile to consider other factors like the performance track record, fund management and volatility that determine the portfolio return.

5) Myth: One needs a large sum to invest in Mutual Funds

There are funds which allow investments as low as Rs. 1000, with no limits on the maximum amount. in case of Equity linked savings schemes the amount is as low as Rs. 500. Mutual Funds also offer the SIP facility in many of their schemes which allows you to invest small amounts of your choice regularly.

6) Myth: One needs to have a Demat account to invest in Mutual Funds

There are multiple ways in which you can buy Mutual Funds, such as

Offline: By filling up a form through financial intermediaries like independent financial advisors, banks, financial distribution houses etc.
Online: Through the many accessible distributor websites
Online: Through AMC websites

However, if you have a Demat account, you can even consolidate the Mutual Fund holdings along with other holdings in the Demat account. You can even buy Mutual Funds through the same intermediary who helps you buy and sell shares on exchanges.

7) Myth: Funds with a higher NAV have reached the peak

This is a very common misconception because of the general association of Mutual Funds with shares.

To understand the reality of this myth better you need to understand that the NAV is nothing but a reflection of the market value of the shares held by the fund on any day. Click to know more on how higher and lower NAV impact the investor.

Source: AMFII
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