Debunking 7 Mutual Fund Myths: Separating Facts from Fiction

Mutual funds have become one of the most popular investment options in recent years, offering individuals an easy way to invest in a diversified portfolio managed by financial experts. However, despite their popularity, many potential investors shy away from mutual funds due to various myths and misconceptions. In this blog, we will debunk the most common mutual fund myths to help you make more informed decisions and feel confident about investing.

Myth 1: Mutual Funds are only for long-term investing.

Fact:

You can do goal-based investing in mutual funds. Your goal tenure can be short-term, medium-term or long-term. Mutual funds have different schemes around various investment objectives and horizons. You can also invest in mutual funds for ultra-short goals (ultra-short debt funds) or emergency corpus creation (liquid funds).

However, mutual funds are known for the high returns that they provide by the power of compounding and which works when you are in it for the long term.

Based on your needs, you can choose from a variety of mutual funds. For example, if you are looking for a short and medium-term investment opportunity, debt funds are more suitable for you. However, long-term investment calls for equity funds.

Myth 2: Investing in Mutual Funds is same as investing in stocks.

Fact:

Mutual Funds have a diversified portfolio and invest in equity shares, government treasury bills, commercial paper, gold, company deposits, real estate, etc.

Mutual Funds allow investors to build diversified financial portfolios through exposure to a variety of asset classes. You can invest in any of these assets or a combination of them through mutual funds, based on your goals, tenure and risk appetite.

Myth 3: Mutual Fund investments are only for experts.

Fact:

Mutual fund investment is actually one of the ideal investments for all those who have little knowledge of the financial market. That is why it is always advisable by financial experts at Net Brokers to start your investment journey with mutual fund investments.

If you are planning to invest on your own, you may put your portfolio at risk due to little knowledge about where to invest. On the other hand, mutual fund investments are managed by experienced fund managers as well as expert financial analysts on your behalf, and investing in the right mutual fund aligned to your investment horizon and risk appetite can help you reach accumulate desired corpus required to achieve your financial goals.

Myth 4: Past Performance Guarantees Future Results

Fact:

Past performance is not an indicator of future returns. Many investors mistakenly believe that a fund’s past performance will ensure future success. While it’s true that past performance can provide insights into how a fund has performed under certain market conditions, it should not be the sole basis for your investment decision. Market conditions, economic factors, and fund manager strategies can change over time, and returns can vary. Focus on the fund’s investment strategy, returns potential across market cycles, ability to provide predictable outcomes and risk profile before investing.

Myth 5: Too young to start investing.

Fact:

On the contrary, the early you begin investing, the more wealth you can accumulate with the power of compounding working on your side. There’s no “Too Young” when investing in mutual funds. The expert analysts and portfolio managers managing mutual funds enable anyone with an intent to start investing irrespective of their age, experience, and profession.

Net Brokers believe that it is better to invest in mutual funds from an early age via Systematic Investment Plan (SIP) and gradually increase the SIP amount with rising income. That is because it allows you to remain invested in the market for an extended period and have time to your advantage giving you the dual benefit of rupee cost averaging and power of compounding.

Myth 6: All Mutual Funds are High-Risk

Fact:

Mutual funds come with varying levels of risk, including low-risk options.
Not all mutual funds are created equal, and they cater to different risk appetites. If you’re a conservative investor, you can opt for debt funds, which are typically lower in risk compared to equity funds. On the other hand, if you’re willing to take on more risk for higher potential returns, you can explore equity funds. The key is to align your risk tolerance with the type of mutual fund you choose. Additionally, diversifying your investments across various mutual funds can mitigate risk.

Myth 7: You Need to Time the Market to Make Profits

Fact:

Timing the market is neither necessary nor advisable.
One of the biggest myths surrounding mutual funds is that you need to time the market perfectly to make a profit. In reality, trying to predict market movements can be both stressful and counterproductive. A disciplined investment approach like SIPs can help mitigate the risks associated with market volatility. By investing regularly, regardless of market conditions, you benefit from Rupee Cost Averaging, which allows you to purchase more units when prices are low and fewer units when prices are high, thus reducing the overall cost of investment.