5 Misconceptions about Mutual Funds in India

Any investment requires meticulous planning and careful assessment, and mutual funds are no different. Although the expert fund managers manage your funds and take investment decisions on your behalf, you must equip yourself with sufficient knowledge about the funds and stay away from half-baked truth from various sources. If you are a first-time investor, you must be aware of the common misconceptions of mutual funds and the truth behind them.

You need to invest a large amount in mutual funds. Fact Nothing can be further from the truth than this. You can start investing in mutual with as little as Rs. 500 per month. You can invest in mutual funds through SIP (Systematic Investment Plan), where you can invest a small amount periodically in the fund of your choice.One of the significant reasons why many people prefer investing in mutual funds over traditional investment options like fixed deposits and bank savings accounts is that they provide returns with a compounding effect. The key to building a healthy corpus with mutual funds is to start investing early and give your money sufficient time to grow.

A Demat account is mandatory to invest in mutual funds. Fact When you invest in mutual fund schemes, you have the flexibility to receive the fund units either as a physical statement or dematerialised form. Thus, you need not have a Demat account to invest in mutual funds. If you are a first-time investor, you must comply with the KYC (Know Your Customer) norms and submit an application form to the mutual fund house along with other supporting documents as required. Once your KYC is verified and approved, you can start investing.

It is difficult to exit mutual fund investments. Fact Many people feel apprehensive about investing in mutual funds because they believe that they must remain invested once they invest in a particular fund until the end of the fund duration. And, if they try to break-in or liquidate the fund early, they must pay a hefty fine. However, this is one of the most common misconceptions of mutual fund.The truth is that you can start a SIP at any time you want and stop it at your convenience. So, don’t worry about starting a SIP for the next 5, 10, or 15 years. If you want to stop the fund, you can do so by informing the fund house.

Mutual fund companies invest only in the equity market. Fact Many people believe that mutual funds invest only in the equity market or in equity-related securities, and hence they provide higher returns. But the fact is, there are different types of mutual funds that invest your capital in various securities, including equities, debt funds, government bonds, and even real estate trusts.Mutual fund managers make investment decisions based on your risk-taking capacity and financial goals.

Investing in top-rated mutual fund schemes provides guaranteed returns. Fact Remember, all mutual fund schemes are subject to market risks, and funds’ performance varies from time to time based on the prevailing market condition. Thus, there is no guarantee that the funds that have performed well in the past will continue to perform the same way and give higher returns in the future as well.Hence, it is advisable that you periodically review your mutual fund investments to track the performance of different funds and switch the investments as per the market trends to get maximum benefits. However, switching the funds regularly may prove counter productive. You must give your funds enough time to grow. So, use your market knowledge and judgement about market movement and decide accordingly.

Now that you are aware of the misconceptions of mutual funds make sure that you steer clear of them. It is advisable to consult an expert to get the right knowledge about mutual funds basics. This will help you tremendously in getting started with your mutual fund investment journey.With facilities like balanced funds and SIP, mutual funds provide an excellent opportunity to build a healthy investment portfolio and get valuable returns.