5 Common Myths About Mutual Funds You Should Stop Believing
Mutual funds have become one of the most popular investment vehicles, but there are still many myths that are preventing potential investors from reaping its benefits. If you have heard people say that mutual funds are only for the rich or that they always provide high returns, it’s time to get the facts straight. Throughout the course of this blog, we will bust five myths about mutual funds and will introduce clarity so that you can make sound investments in the future.
Myth 1: Mutual Funds Are Only for the Rich
Mutual funds have become one of the most popular investment vehicles, but there are still many myths that are preventing potential investors from reaping its benefits. If you have heard people say that mutual funds are only for the rich or that they always provide high returns, it’s time to get the facts straight. Throughout the course of this blog, we will bust five myths about mutual funds and will introduce clarity so that you can make sound investments in the future.
Why This Myth Exists:
Investing in itself is perceived as a high capital-only activity but with mutual funds, you can invest small amounts at regular intervals and let compounding work for you over time.
The Reality:
Mutual funds can be purchased by anybody, not just the rich.
This is where SIPs come to play — where invests become affordable and consistent.
Even modest investments can compound greatly over time.
And mutual funds often are associated with a popular misconception that they are for high-risk, high-return schemes. Although mutual funds can provide significant profits, they cannot assure returns.
Myth 2: Mutual Funds Guarantee High Returns
A common myth is mutual funds guarantee strong returns. Mutual funds can make good money, but they do not guarantee that.
A mutual fund’s returns depend on market circumstances and the assets it invests in; equity mutual funds, for example, tend to provide good returns but are also riskier given moving markets. On the contrary, Debt funds are much more stable, but left with moderate returns.
Why This Myth Exists:
It is common for investors to believe that past performance will carry into the future, which is false.
The Reality:
Mutual funds are subject to market fluctuations.
Higher returns generally mean higher risks.
Adopting a long-term perspective can mitigate risks.
Myth 3: All Mutual Funds Are the Same
Investors: Mutual Funds serve different investment types and have varied types of mutual funds.
Types of Mutual Funds:
Equity Mutual Funds: Investments are made primarily in stocks that have higher growth potential.
Debt Mutual Funds: These funds invest in Bonds and other fixed-income securities to provide stability.
Hybrid Mutual Funds: Equities and debts are combined for a risk and returns.
Index Funds: tracks on the various market indices and offer passive investment opportunities.
ELSS (Equity Linked Savings Scheme): Tax Saving Mutual Funds that arise deductions under Section 80C.
Why This Myth Exists:
This is a common mistake new investors make, neglecting the fact that there are different types of funds, and all do not operate in the same way.
The Reality:
The fund you choose depends on how much risk you are willing to take on and your financial goals.
The mutual fund houses also diversify their investment portfolio for risk management.
Myth 4: You Need a Financial distributer to Invest in Mutual Funds
Investing in mutual funds is not for the common man without professional input. You may choose to work with a financial distributer, but it isn’t necessary.
How to Invest Without an distributer:
Several direct investment platforms let you invest in mutual funds without an intermediary.
The investment planning is done by using online tools and SIP calculators.
A quick search will provide fund fact sheets and historical performance data.
Why This Myth Exists:
Earlier mutual fund investment was only through brokers which used to make the process look very complicated.
The Reality:
Investing in mutual funds has now become pretty easier through digital platforms.
Use a financial distributer for better return on investment, or consider doing-it-yourself.
Many online resources help simplify investment decisions.
Myth 5: Mutual Funds Are Too Complicated to Understand
The process is so complicated that many potential investors avoid investing in mutual funds. For however mutual funds are a way of making a simple and transparent investment.
Similar to the stock market, but a mutual fund is where multiple investors pool their finances and it is managed by experienced fund managers where they allocate funds to several diversified assets.
How to Understand Mutual Funds Easily:
The objective of the fund, the type of assets you want to put in the fund, and the risk profile of assets are made clear in fund fact sheets.
This will help them generate detailed reports as well as performance tracking.
Investors don’t have to pick individual stocks or bonds — fund managers do all that for you.
Why This Myth Exists:
Financial terminologies and jargon might make investing look difficult but it becomes much easier if you have a right guide.
The Reality:
Mutual funds are transparent with no hidden agenda.
There are plenty of other resources to help educate investors.
That being said, you don’t have to be a financial whiz to invest.
Final Thoughts: Debunking the Myths
Let us revisit the 5 Common Myths About Mutual Funds which you should stop believing:
Mutual Funds Are for the Rich – You can invest with behemoths ₹500 with SIPs.
Mutual Funds Provide Guaranteed Returns – Returns Market Dependent.
- Mutual Funds Are Created Equal – Mutual Funds are of various types and each serves its own purpose.
- You Need a Financial distributer to Invest — You can use online platforms to invest directly.
- Mutual Funds Are Too Complicated – Mutual funds, by their very nature, are easy to understand.
Start Your Investment Journey Today!
Once you debunk these 5 Common Myths About Mutual Funds , you can invest in mutual funds with confidence and achieve your financial goals. One thing that really stands out about mutual funds is that they make a great option for wealth creation and they also allow more flexibility and diversification.
