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The Myths of Mutual Funds

05 Jan 2023

Of late, mutual funds have proved to be the go-to investment instrument for all kinds of investors from those just starting out to experienced investors. Considered as a safer bet than pure stocks, mutual funds are managed by fund managers who invest on your behalf, and that takes care of the responsibility of selecting the best stock pool. Viewed as fairly secure investments, as investing in mutual funds involves a pool of stocks taken together in a basket, so to speak, mutual funds are surrounded by myths. These can result in erroneous deductions and missed opportunities for investments. Hence, it is vital that some of these be busted before you invest. 

First Myth - Mutual Funds Serve the Purpose of Long-Term Investment

With mutual funds, your investment may be goal-based. Whatever goal you decide to choose, short-term, long-term, or medium-term, you are likely to earn fairly decent returns. Mutual funds constitute various schemes that deal with different objectives and a range of horizons. Mutual funds are also seen as good investment products to fulfil extremely short-term investment goals (ultra-short goals). These are in the form of debt funds. Furthermore, you will discover that several investors show a keen interest in mutual funds to meet the purpose of creation of emergency funds. 

Second Myth - Only the Experts Understand Mutual Funds

This couldn’t be further from the truth as the best mutual funds  to invest in are based on much the same knowledge investors have about stocks. It is true that mutual funds are managed and operated by professionals who are fund managers, but as an investor, you may do your own research about company stocks and suggest that you want specific stocks included in a fund of your choice. 

Third Myth - Mutual Fund Investment is Identical to Stock Investment

Mutual funds contain many assets that are part and parcel of investments. Therefore, the best mutual funds in India may invest in debt and equities, gold, money market instruments, and fixed income products. Any of these assets or a culmination of them could make up your mutual fund investment. What you invest in depends largely on your tolerance of risk, your financial aims, tenures of choice, etc. 

Fourth Myth - Mutual Funds that Have a Low Net Asset Value are Good

Whether you allocate your wealth in small-cap mutual funds or large-cap funds, the NAV or net asset value is the total value of any underlying assets that make up the fund. This is the market value and not the market price. The difference in a mutual fund’s NAV between two distinct periods indicates the performance of the fund in question. Therefore, a comparison of NAVs between distinctive mutual funds has no bearing on the decision of the choice of a mutual fund. 

Fifth Myth - Mutual Fund Returns are Always Guaranteed

The returns that you get from mutual funds depend on the asset profiles of the funds. Mutual funds are pooled assets, the returns of which are related to the underlying assets’ prices. These may be prone to fluctuations now and then. Hence, returns may not be fixed or guaranteed. 

Learn About Mutual Funds

When you wish to allocate your funds for investment, it's best to gain some knowledge about what you wish to invest in. There are many other important myths that you may want debunked about mutual funds. The first thing to do is to put your investment queries in the hands of a reliable broker like Motilal Oswal. Here, you can open a Demat account free of cost and get the best investment advice and opportunities. 

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Tax Benefits of Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | Upcoming IPO | LIC IPO

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