You Should Ignore These 7 Mutual Fund Myths
Do you wish to put your money into mutual funds? However, do you lack sufficient knowledge about it, or do you believe that mutual funds are not for you based on what others have said? Don’t be concerned. We’re here to debunk some common misconceptions about mutual funds.
Myth #1: A SIP is a type of investment.
Many individuals nowadays believe that the Systematic Investment Plan (SIP) is a separate investment product from mutual funds. This is not the case. SIP is a method of investing in mutual funds. There are two basic ways to invest in mutual funds: lump sum or one-time purchases and systematic investment plans (SIPs). SIP allows clients to invest in a fund of their choice on a regular basis. A certain sum is automatically taken from your savings account on a predetermined date after the SIP mandate is set up.
For example, if you have a SIP of Rs 1,000 in Fund A on the 10th of every month, Rs 1,000 will be taken from your bank account and invested automatically on the 10th of every month.
Myth #2: Investing in mutual funds requires a large sum of money.
There’s a common notion that mutual funds are only for persons with six-figure incomes and those in the business class. It is, however, completely incorrect. Many fund companies have made it easier to invest in mutual funds by lowering the minimum investment amount for both lump-sum and SIP
investments. SIP investments require Rs.100 and further investments require Rs.1,000.
Myth #3: Investing in mutual funds equates to stock market investing.
Mutual funds make stock market investments. Other types of mutual funds, on the other hand, do not invest in the stock market. Bond mutual funds invest in corporate and government bonds, as well as money market instruments such as Treasury bills, commercial papers, certificates of deposit, and collateral borrowing and lending obligations (CBLO). The goal of these products is to provide capital protection as well as consistent returns.
Myth #4: You Must Be a Mutual Funds Expert
Mutual funds are for everyone, but direct equities are for experts. To invest in mutual funds, you don’t need to be an expert or have any prior investment experience. Because these funds are managed by skilled fund managers. The fund managers are supported by a competent research and investment team. It is a cost-effective approach to have specialists manage your finances.
Myth #5: Only invest in mutual funds if you have a long-term investment strategy.
If you wish to invest in equities mutual funds, you should think about it for at least five years. It is not relevant to all mutual funds kinds. Debt funds, particularly overnight funds, liquid funds, and ultra-short-term funds, allow you to park your money for a day to three months. Depending on your investing horizon and aim, you can invest in a variety of mutual funds.
Myth #6: Investing in a highly rated mutual fund guarantees higher future returns.
Using a mutual fund’s star rating alone to predict future returns is a bad idea. The rankings are fluid and subject to change. The fact that a fund has received five stars from several organisations does not guarantee that it will outperform other funds. Due to the credit defaults of the invested company, the value of five-star funds has fallen in some cases.
The easiest way to track the fund’s performance is to compare it to its benchmark. Evaluate the mutual funds’ performance against the benchmark and other funds in the category on a regular basis to determine whether you should stay involved.
Myth #7: Investing in a fund with a low net asset value is preferable (NAV)
Many investors assume that investing in a fund with a low unit price (NAV) is better since the fund’s appreciation will be greater. It is meaningless because it only indicates the market value of the fund’s holdings and investor inflows. The growth in the value of the underlying securities will determine capital appreciation.
These were the seven most common mutual fund misconceptions. A financial advisor can assist you if you wish to invest in mutual funds and need to distinguish between misconceptions and truths.