Mutual Fund Myths Busted

Myths are false ideas or superstitions. A black cat crossing your path will give you ill-luck! Milk is a complete food! Some myths are harmless but some can create problems if taken very seriously.

Here are some myths related to MFs that are not true. Let us bust them-

Lower NAV means better value

My friend wants to invest in one mutual fund scheme as its NAV is Rs.12 as compared to another one in the similar category whose NAV is Rs.120! She thinks she will buy the 'cheaper one'! This is a myth that many people fall for. The NAV represents the market value of the fund's investments. So suppose both schemes have the same portfolio and there is an appreciation of 10% in the portfolio. The NAV of both schemes will appreciate by 10%. So your investment value would have risen the same in both MF schemes.

Only experts can invest in Mutual Funds

Mutual funds are managed by professional managers. MFs in fact are suitable for people who are wary of entering the stock market due to lack of knowledge. One can take advantage of the different investment instruments by investing in MF schemes.

It is good to be aware of the market and understand your portfolio and educate yourself about the market.

I need to open a demat account to invest in Mutual Funds

Mr. Joshi is wary of using the online mode for money transactions or make investments. He is not confident of using computers or smart devices. So he does not invest in MFs thinking a demat account that can only be used online has to be opened to transact in MF schemes. But this is a myth. You can deal in MF schemes with the fund distributor/financial planner. You need to be KYC compliant.

I will buy top rated (5 star) Mutual funds so that I get the best returns

There are companies like CRISIL and Morningstar that rate mutual fund schemes. It is good to consider top rated funds to invest in. But ratings cannot be the only factor. You have to consider risk, current market scenario, your portfolio and returns volatility along with rating to decide on your investments.

I do not have a large amount of money so I cannot invest in MFs

Rashmi wants to invest in mutual funds as she has heard that they can give good returns. But she hesitates as she does not have any big savings. She is wrong as MF investments can be done investments with an amount as low as Rs. 500 if she goes the Systematic Investment Plan (SIP) route. A one-time investment requires a minimum sum of Rs. 5000.

Mutual funds are not for short-term investing

There are different types of mutual fund schemes for different objectives. You can choose the MF you want depending on your investment needs.

For example, liquid funds and short-term debt funds are preferred for short-term financial goals. Equity funds are selected for long-term investments.

Buy it, Forget it

It is comfortable to invest some money in an MF and then forget about it. This is wrong as even the best funds are subject to risk of losing money. It is imperative that you review your portfolio regularly and tweak it as per market conditions so that you optimize your returns.