Despite the wide range of investment options on the market, mutual fund schemes are one of the most practical and reliable ways to accumulate wealth by investing. A significant advantage of a mutual fund investment is the professional management of your mutual fund portfolio. An experienced fund manager carries out extensive market research and invests accordingly. However, despite professional management, be aware of a few misconceptions so that you don’t lose money when you invest in mutual fund schemes:
- Investments are expensive:
One of the most common misconceptions about Mutual Funds is that investments are expensive. However, that’s not the case. Regardless of the investment mode, i.e., lump sum or SIP, you don’t need a hefty sum for fund allocation. Furthermore, there is no maximum amount for investing. Moreover, with SIP, you can start with a small investment amount determined by an online SIP calculator.
- They only invest in equities:
Mutual funds allow you to invest across asset classes like equity, gold, debt, and real estate. Assess your risk profile and financial goals and build an asset allocation plan investing in different asset classes, including equities. Ideally, invest in equity funds when you enter the job market and switch to debt funds as you near retirement age.
- They all are risky:
Another common misconception about mutual fund investments is that they all are inherently risky. While some mutual fund variants are riskier than others, some are comparatively less risky. Mutual funds are diversified, meaning they invest across sectors and market capitalisations. Fund diversification helps to spread out the risk, cushioning your losses. If one asset class underperforms, it will not significantly impact the overall value of your mutual fund portfolio. So, throw the misconception that all mutual fund investments are inherently risky.
- You should be an expert:
People assume that mutual fund schemes are suitable only for professional investors. But this is far from the truth. Mutual fund schemes are accessible to all types of investors, irrespective of their expertise or experience. A wide range of mutual fund schemes are available, catering to different types of investors. Assess your risk tolerance level before you start investing in a mutual fund. Check that the chosen mutual fund aligns with your risk appetite and financial goals.
- Returns are guaranteed:
Mutual Funds offer returns based on the risk involved. So, you can enjoy higher returns if you invest in a mutual fund involving higher risks. However, make note of the fact that mutual fund returns are not guaranteed. They are market-related investments where returns rely on market movements. Therefore, expecting mutual fund schemes to provide guaranteed returns is unreasonable.
Apart from the five above, a few other myths are equities will fetch stable annual returns, lower NAVs are better than higher NAVs and mutual funds suit only long-term financial goals.
Your work does not end with choosing a mutual fund scheme. You should know more about investing. You can dispel mutual fund myths by starting small, consulting a financial advisor, and thoroughly researching the market.