Mutual funds have become quite popular in recent years but there are many mutual fund myths that are still believed by Indian investors.
Today, we are debunking these mutual fund beliefs with facts to help you make informed decisions in your investment journey.
Here’s a list of 10 mutual fund myths that you should stop believing today.
Myth 1: Mutual funds are only for those who like to invest in the stock market.
Fact: Mutual funds are not limited to the stock market alone. They also invest in money market and debt instruments, providing diversification and professional management. Mutual funds offer benefits such as risk management, expert portfolio selection, and simplified investment without the need to track individual stocks.
Myth 2: To get gains, you must buy into lower Net Asset Value (NAV) schemes
Fact: The performance of a scheme is determined by its percentage returns, not the NAV value. The focus should be on factors like performance track record, fund management, and volatility to gauge portfolio returns accurately.
Myth 3: New Fund Offers (NFOs) are superior to existing schemes.
Fact: NFOs are not necessarily better than existing schemes. Consider schemes with a proven long-term track record instead of being swayed by the novelty of NFOs.
Myth 4: Buying funds after dividend announcements leads to profits.
Fact: Fund performance is not dependent on dividend pay-outs. Dividends are paid from accumulated profits and reflect as appreciation in the Net Asset Value (NAV) of the fund.
Myth 5: Redeeming funds with high NAV and reinvesting in low NAV schemes is beneficial.
Fact: NAV value should not be the sole criterion for investment or redemption. Focus on factors like percentage returns, volatility, and risk-reward profile to make informed investment decisions. Long-term investments and fund performance should be prioritized.
Myth 6: Timing Mutual Fund investments is essential.
Fact: Timing the market is not advised. Instead, consider systematic investment plans (SIPs) to invest regularly, irrespective of market movements. Long-term investment horizons and consultation with financial advisors are recommended.
Myth 7: Fund performance is directly linked to the stock market.
Fact: Mutual fund schemes can perform independently of the stock market as they diversify investments across various stocks. Fund managers review portfolios periodically and have the flexibility to adjust the allocation between equity and debt instruments.
Myth 8: Debt funds are impacted by equity market movements.
Fact: Debt funds primarily invest in fixed income securities and money market instruments, minimising exposure to equity market movements. These funds offer relatively lower risk and a stable income stream.
Myth 9: Mutual fund investments are only suitable for young investors.
Fact: Mutual funds cater to different risk appetites and time horizons. Selection should be based on an individual’s risk profile and investment goals, not just age. Low-risk options like balanced funds are suitable for retirees, while higher-risk options can be considered by young investors.
Myth 10: Choosing dividend pay-out or growth options is the same for all funds.
Fact: Dividend options provide periodic cash returns, while growth options reinvest returns, reflecting as appreciation in the NAV. The choice depends on the investor’s need for periodic income and tax implications.
Conclusion
How many of these mutual fund myths did you believe in? Here are more mutual fund myths that Indian believe.
Demystifying common myths surrounding mutual fund investments is crucial for investors seeking financial growth. By understanding the facts behind these myths, investors can make informed decisions and navigate the mutual fund landscape with confidence.
With the guidance of financial advisors and a focus on long-term goals, investors can harness the benefits of mutual funds to achieve financial success. Remember, knowledge is power when it comes to mutual fund investments, and dispelling myths is the first step toward unlocking their true potential.
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