With growing financial awareness, people are more inclined towards mutual fund investments keeping behind the traditional investment alternatives like- Bank Fds, Post-office deposits etc. Against 5% to 7% return on fixed deposits, returns on mutual fund are around 13% which is really high. Isn’t that great?
As we know, mutual fund pools money from the investors and invests in bonds, securities, stocks etc. with similar investment objective. To invest in mutual fund, you don’t have to take the pain of market research. Professional fund managers analyse the market and manages your investment portfolio. So, you don’t have to invest your time to manage your fund. But still, there are some common myths related to mutual funds which can hamper your investment experience.
Lets discuss mutual fund’s myths and their actual facts.
- Myth 1-Best performing funds give better return
The funds which are giving good returns in the past are generally expected to perform the same way in the future.
Fact- The performance of mutual fund is based on market fluctuations, economic policy or prevailing political condition.
Funds with good performance history might not perform the same way in the future. The past performance does not fully guarantee future performance of the fund. Though a fund’s performance history is good index to look upon. But you should also check the benchmark index to evaluate a fund’s return.
- Myth 2-Only experts can invest in mutual fund
Most of the times, individuals with full knowledge of market are considered eligible to invest in mutual fund.
Fact- Investors who are amateur and don’t have any market knowledge can easily invest in mutual fund.
Your fund is professionally managed by expert fund managers with intense market research. With mutual fund investment, you can earn good return without having any sound knowledge of market and its volatility.
- Myth 3- Invest a large sum of money
One needs to invest a large sum to create wealth in mutual fund.
Fact- You can invest according to your preference with a minimum SIP of Rs. 500 per month.
To invest in mutual fund, you can go for a lump-sum investment with no upper limit. Also, you can do SIP of minimum amount of Rs. 500 per month and can increase the amount eventually.
- Myth 4- Become rich with mutual fund investment
If you invest in mutual fund, you will become very rich.
Fact- Your dream will come to reality or you will be successful in creating wealth.
Mutual funds are influenced by market fluctuations and volatility. But they do generate wealth which takes patience and disciplined investment habit.
- Myth 5- Invest after a certain age
After you have attained a matured age with good market knowledge, only then you can invest in mutual fund
Fact- The more early you start investing, more you generate wealth.
You can invest being an amateur on market knowledge. As fund managers manage your fund with utmost efficiency which reduces the riskiness. If you invest early, then you will be able to accumulate more wealth with each passing day.
- Myth 6- Mutual fund is equivalent to long-term investment.
Investors with only long-term investment motive can opt for mutual fund.
Fact- Depending on the investment objective and risk taking ability, you can go for different types of mutual fund.
To cater various needs of the investors, you can easily invest in mutual funds with varying duration starting from long-term fund, short-term fund or ultra short-term fund. Though you enjoy the benefits of compounding if you invest for a longer time period. But you can invest in short-term funds with good return.
- Myth 7- Demat account is mandatory.
In order to invest in mutual fund, you must have a demat account.
Fact- Demat account is optional and not mandatory.
It is absolutely optional to have demat account for mutual fund investment. But demat account is mandatory for exchange traded funds.
- Myth 8- Funds with lower NAV is better than higher NAV
Mutual funds with lower NAV is better than the higher NAV.
Fact- Funds with higher NAV must not be ignored.
NAV is the current market value of your portfolio. Funds with higher NAV means either the said fund is in growing phase or has reached its ultimate level. Whereas lower NAV usually indicates higher units. Just keep in mind that the NAV has no influence on a fund’s return capacity.
- Myth 9- Dividend is an extra income of mutual fund investments
Mutual fund dividends are considered as extra income on the investment.
Fact– Out of your investment account, the dividend is paid which reduces the NAV at the same rate.
With the payment of dividend, NAV falls with the same extent. In order to enjoy the benefit of compounding, you can opt for mutual fund growth option. With growth option, you earn higher net annualized return than with dividend option.
- Myth 10- No need of monitoring the fund.
Mutual funds are managed by fund manager, so you need not have to monitor the performance.
Fact- Periodic monitoring of mutual fund is very essential.
If your investment is not matching your goal, then you must take steps to correct it or switch funds if needed. For that you must monitor your fund and its performance.
- Myth 11- Mutual funds are equivalent to equity investments
Mutual funds only invests in equity markets.
Fact- Mutual fund invests in equity, debt, balanced fund depending on your investment goal.
There are different types of mutual funds to satisfy varied investment demands. Depending on your risk-taking ability and financial goal, the investment decision is taken.