Mutual Fund investment: Time to bust ten common myths
Mutual funds cater to investors of all ages, providing diverse investment options suitable for different life stages and financial goals
Mutual funds have long been a staple in investment portfolios, offering a diversified and professionally managed approach to building wealth. It is one of the most widely used investment options in India. However, there are several misconceptions surrounding MFs that can hinder potential investors from making informed decisions. In an exclusive chat with Livemint Gurmeet Singh Chawla, Director, Master Capital Services Ltd debunked the most common myths about mutual funds.
Here are the 10 most common myths about investing in mutual funds
1) Mutual funds invest only in the stock market
Mutual funds offer diversified investment options by pooling funds from multiple investors into various asset types. “Contrary to the common belief that mutual funds invest only in stock markets, they come in various types, investment is made in equity, debt, and hybrid funds, allowing investors to align investments with their risk tolerance and financial goals,” said Gurmeet Singh Chawla.
2) Mutual funds aren’t for young investors
According to Chawla, another misconception is that mutual funds are unsuitable for young investors. In truth, mutual funds cater to investors of all ages, providing diverse investment options suitable for different life stages and financial goals keeping risk appetite into consideration.
3) High Capital requirement for investing in Mutual Funds
Mutual Funds require minimal capital to start investing. Many funds offer systematic investment plans (SIPs), enabling investors to begin with modest amounts and gradually increase their contributions over time.
4) Mutual Funds have a lock-in period
Chawla says that although some mutual funds entail a lock-in period, not all do. This period varies depending on the fund type, while many funds offer liquidity and flexibility, enabling investors to redeem their investments at any time.
5) Higher past returns ensure future achievement
It's crucial to note that higher past returns in mutual funds don't guarantee future success.
While past performance offers insights, the dynamic nature of financial markets is not a guaranteed indicator of future results, and investors should consider various factors, including the fund's strategy and market conditions, said Director, Master Capital Services Ltd
6) The Higher the NAV of the scheme has reached its peak
The Net Asset Value (NAV) of a mutual fund simply represents its per-unit price and doesn't signify its peak; it fluctuates based on underlying asset performance and market conditions.
7) Debt Mutual fund is better than Equity mutual Fund
Debunking the notion that debt mutual funds are superior to equity mutual funds, Gurmeet Singh Chawla said that debt funds are sought for stability, while equity funds entail higher risk for potentially higher returns.
8) All mutual funds are designed for the long-term
“Not all mutual funds are designed for the long term. Some funds, such as liquid funds or short-term debt funds, are suitable for short-term goals and offer liquidity,” said Gurmeet Singh Chawla
9) Mutual Fund Investments do not attract Income Tax
The returns on mutual fund investments are subject to short-term and long-term capital gains tax.
10) KYC is required every time during investments in Mutual Funds
KYC (Know Your Customer) is a singular process mandated for investing in mutual funds. Completing KYC with a registered intermediary—like a mutual fund distributor or KYC registration agency—validates it across different mutual fund investments, said Chawla.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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First Published:20 Dec 2023, 12:18 PM IST
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