In India, mutual fund investments have ramped up five times in just ten years. In 2012, the total AUM in the mutual fund industry was around Rs. 7.30 trillion, which has become Rs. 37.75 trillion in 2022. This huge growth has been a result of many myths about mutual fund investments being busted in recent times. In this article, you will find five such misconceptions about mutual funds. If you still believe in these misconceptions, it’s time to know the truth.
1- Myth: For investing in mutual funds, you need lump sum money –
So the most popular myth about mutual fund investments is that one needs a huge corpus to invest in mutual funds.
Fact: The truth is you can start investing with just Rs. 100 or Rs. 500 per month in mutual funds. All you need to do is to invest via sip mutual funds.
Explanation: A systematic investment plan (SIP) helps you invest a smaller monthly amount into mutual fund schemes. So, there is no compulsion to invest a large amount at one go to start your investment into mutual funds. Even investing via SIP helps in rupee cost averring, which helps you gain higher returns.
2- Myth: Mutual funds offer guaranteed returns –
There has been a misconception among many that mutual funds offer guaranteed returns at maturity. Many believe they will receive a specific return on the scheme's maturity.
Fact: The truth is that mutual funds offer higher returns than fixed-income assets however, the returns are not guaranteed like fixed-income assets.
Explanation: The mutual fund's returns are subjected to market risks; thus, you cannot expect a particular return from mutual funds. However, if you choose wisely, you get higher returns than traditional risk-free assets.
3- Myth: These are long-term investments only-
There has been a misconception about the tenure of mutual funds investments. Many people think that they need to stay invested in mutual funds for the long term as mutual funds offer no return in the short term.
Fact: The truth is that the tenure of investments depends on the type of assets you choose.
Explanation: If you are opting for large-cap mutual funds, then staying invested for a longer tenure will help you accumulate higher returns, while with small-cap or mid-cap funds, you can stay invested for even 3 years or 5 years to get higher returns. While with debt funds, you can even invest for less than three years. So, there is no rule that you have to invest for the longer term. Your choice of funds will decide the right tenure of investment.
4- Myth: Redeeming mutual funds is tough –
This is another misconception related to the tenure of mutual fund investments that redeeming or withdrawing funds from mutual funds is a tough job.
Fact: The reality is you can withdraw or redeem your mutual funds within a few minutes.
Explanation: While it was always easy to redeem mutual funds, with the new-age technologies and applications to invest in mutual funds, you can redeem them in a few simple steps without any hassle. You also get the money credited to your account within 4-5 business days.
5- Myth: You have to know it all –
Many have the misconception that for investing in mutual funds, you need to be a pro in the stock markets and financial analysis; otherwise, you will lose all your money.
Fact: In reality, for investing in mutual funds, you need to have a basic idea of mutual funds, and all you need to know is your risk appetite, investment goals, and the period for which you want to invest. Explanation: Nowadays, advanced applications can shortlist the right funds for you when you enter these details.
Mutual fund investments are the most popular investment vehicles in India. However, there are still many misconceptions which are restricting people from investing in mutual funds. Thus, you must know the facts to plan your investments wisely.