Common Myths About Mutual Funds That May Hinder Your Investment Journey

Mutual funds have emerged as a popular investment vehicle for individuals looking to diversify their portfolios and earn reasonable returns. A lot of potential investors are discouraged from taking use of their advantages because of the various myths that surround them, even if they are quite popular.

A mutual fund is a pool of money collected from multiple investors to invest in a diversified portfolio of assets such as stocks, bonds, or money market instruments. Mutual funds, which are professionally managed, support a range of investing goals, including capital preservation, income production, and wealth growth. They provide ordinary investors with an easy and effective way to trade in the financial markets.

• A wide range of investors can benefit from mutual funds, and they are not as complicated as they might appear.
• A sizable volume of money is not required to begin investing in mutual funds.
• Although they are not totally tax-free, mutual funds do have certain tax advantages.
• SIPs (Systematic Investment Plans) allow you to start small and invest regularly.
• You can withdraw from mutual funds anytime, but it's important to consider the type of fund and lock-in periods.
• NAV (Net Asset Value) is not the sole factor in determining a mutual fund’s performance.
• Regular monitoring is crucial for optimizing returns, but you don’t need to check daily.

Let's unravel some common myths about mutual funds that may be holding you back from making well-informed investment decisions:

Mutual funds are only for experts

The idea that mutual funds are best suited for seasoned investors is among the most widespread misconceptions about them. Mutual funds are really made to be easy to use. They make it possible for novice investors to join the market since fund managers make all of the difficult decisions. Several websites, such as Bajaj Finserv, offer information and instructional tools to make investing easier.

You need a large sum of money to invest

Contrary to popular belief, you don’t need to be wealthy to invest in mutual funds. You may start investing with as little as ₹500 a month with SIPs. Due to their versatility, mutual funds may be used by a variety of investors, including those with tight budgets.

Also read: Section 112A of Income Tax Act

All mutual funds are risky

While it's true that equity mutual funds carry market risks, there are also other types of funds like debt and hybrid mutual funds that are designed for more conservative investors. The risk level depends on the type of fund you choose, and with professional fund management, your risks are diversified.

Mutual funds are tax-free investments

It's a frequent misconception that returns from mutual funds are always tax-free. Mutual funds are not entirely tax-exempt, although they can in fact provide tax advantages. For example, Section 80C tax deductions are available for mutual funds under the Equity-Linked Savings Scheme (ELSS), but capital gains beyond a specific threshold are taxable.

Past performance guarantees future returns

Many investors choose funds based solely on their historical performance, believing it’s a guaranteed indicator of future returns. However, markets are volatile, and while past performance can offer some insights, it does not guarantee future success. It’s better to assess mutual funds on the basis of long-term consistency, fund manager’s strategy, and overall market conditions.

SIPs are only for small investors

Though SIPs are often recommended for individuals looking to start small, they are equally beneficial for seasoned investors with substantial wealth. SIPs allow investors to spread out their risk over time and benefit from market fluctuations through rupee cost averaging, making them an effective investment strategy for both small and large portfolios.

Mutual funds lock your money for years

Although many mutual funds, such as ELSS, have a lock-in period, not all mutual funds have long-term withdrawal restrictions. Many mutual funds allow you to redeem your units whenever you need liquidity. However, it’s important to be aware of exit loads or fees for early withdrawals.

Low NAV means the fund is a better buy

Another myth is that a low NAV is more attractive to investors. NAV is simply the current market value of the mutual fund’s holdings, and a lower NAV does not make the fund cheaper or better. What matters more is the fund's portfolio, the quality of its investments, and its long-term performance.

Mutual funds require constant monitoring

Mutual funds are avoided by many investors because they believe they must constantly monitor their performance. Although it is recommended to monitor your mutual fund frequently, especially during market swings, you do not need to check it daily. Professional fund managers continuously manage and rebalance the fund’s portfolio to meet its objectives.

Also read: Section 111A of Income Tax Act

You need a demat account to invest in mutual funds

A common misconception is that a demat account is mandatory to invest in mutual funds. The majority of mutual fund sites, including Bajaj Finserv, let you invest directly without a demat account, even if having one is advantageous for managing equities. They offer simple online solutions for tracking, investing, and redeeming units of mutual funds.

Once you bust these widespread misconceptions, investing in mutual funds may be a rewarding experience. They offer a competent, varied, and easily accessible means of increasing your money. Knowing the ins and outs of mutual funds, whether you're a novice or an experienced investor, may help you make better investing choices.

To make your investment journey even smoother, platforms like Bajaj Finserv offer access to over 1,000 mutual fund schemes. You can easily compare various funds, calculate potential returns using the Mutual Fund Calculator, and make well-informed decisions. Start investing with confidence and enjoy a seamless experience with the Bajaj Finserv platform!