Myths about Mutual Funds

Investments in Financial Assets is set to increase manifold in the coming years, we already saw this in the last few years, thanks to poor returns from Real Estate, Gold and decrease in the Interest Rates of Fixed Deposits. “Mutual Funds Sahi Hai” campaign also fuelled most of the inflows into Mutual Funds. Still lot of investors have some misconception about Mutual funds, which is very much visible by the questions people ask in Social Forum.  Will discuss more common myths in this post:

Mutual Funds only for Rich people and not for Salaried or Middle Income Groups, this is the most common one. Whenever i meet prospects, they have this question for me. My answer is most of the Rich people have created wealth by investing part of their profits or salary, only very few have inherited wealth rest have started from scratch. So, i strongly feel Mutual funds are mostly suitable for Middle Income and Retail investors.

Mutual funds are suitable only for long term investments / horizon. This is completely wrong, whatever is your investment horizon is, and we have products for it. Starting from; few days to few decades. Only disclaimer is, you need to choose the right product according to your time horizon.

Lumpsum Investments only feasible, for small investments you need to invest in Bank FD or Post office schemes. Please be aware that in mutual funds you can start with as low as Rs. 500 per month. There are also Micro SIPs where is the minimum is just Rs. 100.

Need to buy only Top Rated Schemes, this myth is visible even in seasoned investors. Sometime i get query from my clients that Ravi, this MF rating is very poor why we should invest in this, i normally reply them that sir, rating keeps changing based on the past performance of the scheme, top schemes now will change in the next few months if the performance dwindle. So don’t go by ratings, Fund Wallet schemes are chosen by both Qualitative and Quantitative Factors.

Demat Account required for investing in MFs, though you can keep your Mutual Funds investments in Electronic mode, but it’s not mandatory. You can also invest in Physical Mode; you just need to be KYC complied for Investing in Mutual Funds.

MFs Suitable only for Beginners, No, not at all, even for someone who has decades of experience in Investing in Capital Market, you can leave your investments to Professional Fund Managers to manage your Investments.  In-fact there is lot of advantages on routing your investments through Mutual funds.

NFOs are cheaper than existing funds. NAV of 10 doesn’t mean that it’s cheap and better to invest in that. Existing funds have a track record and we know the investment style of the Fund Manager and the process of the Fund Management Team. So, if anyone suggests you to invest in NFO as the NAV is just Rs.10, please run away from them.

Happy Investing!

RaVi