There’s no doubt that mutual funds are one of the most sought-after investment options among retail investors. This trend has significantly increased since the demonitisation in 2016. While it is hugely popular among investors, the mutual fund industry barely accounts for 10% of the gross GDP of the economy. While there are certain factors responsible for that, misconceptions and myths regarding mutual funds, simply worsen this situation. In this article, we will explore several misconceptions about mutual funds that every investor has.
- Mutual funds = equities
Several investors are in the dark that investing in mutual funds means investing in equities. However, that does not paint the right picture. There are so many types of mutual funds that you can invest in – and equities is just a part of it. You can allocate your investments in fixed income securities such as debt funds or hybrid funds as well.
- A mutual fund with exceptional past performance will perform the same
Though past performance of a fund is a good indicator of how the fund is likely to perform, it could not be used a definitive indicator. You must try to look at the performance of the fund across market cycles – this will give you a better picture of how the fund is likely to perform during a peak and a crust. You can also compare mutual funds against funds with similar composition or its underlying index.
- You must be a financial guru to successfully invest in mutual funds
Several investors have this misconception that they must be endowed with abundant knowledge to invest in mutual funds. As a result, several investors shy from making their way towards mutual funds. However, this is not true, you do not need to be an expert to buy mutual fund investments. In fact, mutual funds are designed in such a way that even a novice investor who doesn’t has much idea of the workings and understandings of the markets, can benefit from mutual funds through the professional management they offer to their investors.
- You must invest a significant amount to invest in mutual funds
Another common misconception is that one needs to be rich or invest a substantial amount in mutual funds. This is far from true. If you do not have a substantial amount to dedicate towards mutual fund investments, you can always invest in mutual funds through a systematic way of SIP (systematic investment plan). SIP allows investors to invest a small, insignificant amount in mutual funds. In fact, you can invest as less as Rs 100 per month via SIP.
- If you do not wish to lose money, invest in SIP
Though SIPs are a great investment tool to invest in the market for a long period of time. But, they are not 100% safe. For that matter of fact, no investment is entirely risk free. What’s more SIP is simply a tool to invest in mutual funds. So, if you are looking to preserve your wealth, you may consider investing in fixed-income securities that have a low risk profile through SIP mode of investment.
Hopefully, now that we have cleared certain myths and misconceptions revolving around mutual fund investments, it will encourage you to invest in mutual funds and enjoy the benefits of mutual fund investments. Happy investing!