5 Myths about Mutual Fund Investment

Every task requires prior knowledge. This is necessary to accomplish the task with utmost perfection. However, during the process, we assume certain facts that might not be true or appropriate. The same goes true for mutual fund investments.

Most of the investors have incomplete knowledge which further leads to problems. This is our attempt to clarify certain myths associated with tax-saving mutual fund investments. So, if you are a beginner in the game, you should confront these facts before proceeding with the investment.

You Should be an Expert Otherwise you are Doomed to Drown

There is a general misconception that you need to an expert to initiate something. While this may be true for specific conditions, but not with the mutual fund investments. In fact, if you are a novice, you can still prosper with the mutual fund investments. How is this possible?

The mutual fund companies hire the best financial advisors or fund managers for managing the assets. They handle all the investments based on the market movements. While your investments are in the safe hands, you consider gaining knowledge to become an expert in the game.

You Require a Large Capital

There is a proposition for investing large lump sum amount in the mutual funds. Often, investors get confused that you need a large sum to invest in mutual funds. Well, this fact is certainly not true. In fact, most of the investors pour in the fixed amount of investment on a regular basis. And this is called systematic investment plan (SIP).

In this method, you invest an EMI each month for a particular period. After the maturity period, you can plan to reinvest the amount or credit it back into your account.

Mutual Funds means ONLY Equities

Equities are so profound in the mutual fund investments that the investors seem to consider equities as the only money market instrument. Let us clarify this myth that mutual fund investments incorporate diverse money market instruments such as debt instruments, and gold. For a lower risk investment, consider a balanced fund comprising of both equities and debt funds. As of 30th September 2016, 66% of the investments were made in debt mutual funds.

Five-Star Rated Funds are the Ultimate Champions

Although five-star rated companies are the major players, you cannot assume that they are the ultimate performers. There are underdogs in every game. Moreover, the stock market keeps fluctuating and hence, you cannot determine the future performance at all. You can judge on the basis of past performances but you cannot proclaim that your investments will be secure with the five-star rated AMC’s.

There are No Risks with SIP’s

See, you must have always noticed the disclaimer associated with the mutual funds. As SIP’s are part of the mutual funds, they are also subjected to market risks such as volatility of returns, etc. Investing in SIP’s with the majority of stake in equities is a high-risk investment while a balanced fund is a medium-risk investment. If you want to eliminate the possibility of risks, you can invest in fixed return schemes. But then, you have to compromise with the returns.