myths in mutual fund investing are not harmless. they cost real money.
most of these myths do not survive a single google search. the problem is that most investors do not realise they are operating on a myth until after a decision has already been made . the nfo that felt like a bargain because nav started at ₹10. the sip paused in march 2020 when markets fell 38 per cent. the star-rated fund picked in january only to disappoint by december .
they spread because they contain a grain of logic. low nav does sound cheaper. past performance is the only real data investors have. stopping investment when markets fall does protect capital in the short run. the grain of logic is what makes the myth stick .
myth 1. lower nav means cheaper fund
a mutual fund’s nav is not a stock price. it does not signal value. it is just the per-unit value of the fund’s assets .
two funds. one with nav of ₹10. another with nav of ₹100. invest ₹10,000 in each. the ₹10 fund gives 1,000 units. the ₹100 fund gives 100 units. both grow 20 per cent. the ₹10 nav becomes ₹12. the ₹100 nav becomes ₹120. the investment value is ₹12,000 in both cases .
what matters is the percentage by which the value grows. that depends entirely on what the fund is investing in . a fund priced at ₹10 does not have more room to grow than one priced at ₹150 . the pizza is the same size. it is just sliced differently .
the ₹10 nav myth is not just harmless confusion. capitalmind’s deepak shenoy called it out directly: a ₹10 nav is not a deal, and it does not make the fund any more attractive than one priced at ₹150 .
myth 2. past performance predicts future returns
a fund’s past returns are data. they are not a promise.
a fund performing strongly in one cycle may underperform in another . market cycles change. sector leadership rotates. economic conditions evolve .
star ratings are dynamic. a scheme may not always remain at the same position month after month . the fund that topped charts last year may be at the bottom this year. confirmation bias makes it worse. investors read the glowing headlines and skip the cautionary notes . the fund manager of the decade becomes the laggard of the next year.
raj saw a mid-cap fund everyone was raving about. it had doubled investor money in three years. business channels called the manager a star. raj invested half his savings. what he missed was that the fund’s stellar returns came mostly from a roaring bull market. the expense ratio was higher than average. its portfolio was concentrated in a few overvalued mid-cap stocks. when markets cooled, those same holdings dragged performance down .
myth 3. sip guarantees positive returns
sips reduce timing risk. they average purchase cost. they encourage regular participation. they do not eliminate market risk .
during prolonged downturns, sip returns may remain muted for periods . a sip started in mid-2024 delivered negative returns in several categories. sips are a disciplined way to invest. they are not a guarantee of profit.
myth 4. mutual funds are safe like fixed deposits
mutual funds carry varying degrees of risk depending on category . large-cap funds have relatively lower volatility. small-cap funds can experience sharper price swings . debt funds carry credit risk and interest rate risk.
unlike fixed deposits, mutual funds do not offer guaranteed returns. they are market-linked. returns can fluctuate . the riskometer shows the level of risk. it is there for a reason.
myth 5. need large capital to invest
sips can start with as little as ₹500 a month . some funds accept ₹100. lumpsum investments have no upper limit .
the challenge is consistency, not capital threshold . waiting to accumulate a large sum means missing years of compounding.
myth 6. expense ratio does not matter much
expense ratio reflects the annual cost of managing the fund. a 0.5% to 1% difference may seem small. over long horizons, compounding amplifies the impact . a fund with a higher expense ratio needs to generate higher returns just to match a lower-cost fund. many active funds fail to do that. nearly 73 per cent of actively managed large-cap equity funds underperformed their benchmarks over the past decade. the number rises to 82 per cent for mid and small-cap funds .
myth 7. should stop sips when markets fall
market corrections trigger fear. stopping sips during downturns interrupts cost averaging. it reduces participation in the eventual recovery. it disturbs long-term planning .
continuing sips during a correction buys more units at lower prices. that is how rupee-cost averaging works.
frequently asked questions
1. is a mutual fund with lower nav cheaper than one with higher nav ?
no. nav is just the per-unit value. it does not indicate whether a fund is overvalued or undervalued . two funds with different navs can deliver the same percentage return.
2. can past performance predict future returns ?
no. market cycles change. sector leadership rotates. economic conditions evolve . a fund performing strongly in one cycle may underperform in another.
3. do sips guarantee positive returns ?
no. sips reduce timing risk and average purchase cost. but they do not eliminate market risk . during prolonged downturns, returns may remain muted.
4. is a demat account mandatory for mutual funds ?
no. holding mutual fund units in demat mode is optional, except for exchange traded funds . units can be held in statement of account format.
5. are mutual funds safe like fixed deposits ?
no. mutual funds carry varying degrees of risk depending on category. unlike fixed deposits, they do not guarantee returns . they are market-linked.
