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Top 5 Common Misconceptions about Mutual Fund

Opportunities are everywhere and everybody can make use of them equally. Why is it then that some people are able to use them wisely while others don’t? Well, the answer is simple- misconceptions. Yes, you heard it right. Misconceptions create unnecessary fear and affect our decisions.

It is due to a few misconceptions people are shunning away from investing in mutual funds. Have a look at the five most common misconceptions people have about mutual funds.

  1. Only those having market knowledge can invest in Mutual funds: This is the biggest misconception a lot of people have regarding mutual funds. Most people feel that mutual fund investments are meant for people who have extensive knowledge of the securities market. One needs to know all the aspects of the stock market to invest in it. It is not at all true. The main objective to start mutual funds was to help people get benefits of the securities market without even having any knowledge about it. As long as a person has some basic knowledge of how mutual funds work and which scheme to choose, he can invest in it. This is because of the fact that the schemes are managed by highly experienced fund managers who hold in-depth knowledge of the market.

  2. Only the rich can afford to invest in mutual funds: This is another misconception among people. Many investors restrict themselves from investing in mutual funds as they think that the investment amount should be huge for better growth. Mutual funds are highly investor-friendly investment options. It helps people from different financial background to achieve their financial goal in a highly disciplined way. A person can invest as low as Rs.500. There are several schemes that allow SIP investment starting from just Rs.100. You can, in fact, invest in mutual funds without affecting your budget.

  3. Mutual funds are limited to equities: Another misconception most people have is that mutual funds invest in the stock market. People fear that they will lose their money if the market underperforms and so restrict them from investing in mutual funds. This again is incorrect. Mutual funds have three major categories which invest in different instruments. They are; Equity schemes- These funds invest largely in the stock market and other related instruments. Debt schemes- Invests predominantly in the debt instruments Hybrid schemes- Invests in equity as well as debt instruments. You can invest in a scheme according to your requirement and risk appetite.

  4. Mutual funds are risky: Risk is an important factor to consider while selecting an investment option. Many people hold the misconception that mutual funds are highly risky instruments and huge losses can be incurred in case the market is low. As mentioned above, mutual funds have different categories and they invest in different types of instruments. The risk associated with these schemes is also different. So, you can have a look at the risk associated with each of the schemes and invest accordingly.

  5. Lower NAV mutual funds are better: A common thought most people have is that they can enjoy better growth in the long term if they bought a mutual fund at a lower price. For instance, people feel that if they buy a mutual fund scheme of NAV of Rs.10 and it gets to Rs.20, the money will get doubled. People also feel that if they buy more units at a lower price, there will be more growth. This is one of the major reasons that beginners end up investing in schemes without much knowledge then face the consequences.

While selecting a mutual fund scheme, it is important that you choose the fund based on the risk associated, portfolio, investment style, etc. Also, remember that you have to analyze the growth of a scheme on the basis of returns in percentage instead of the NAV size.

Hopefully, these five common misconceptions have been cleared. It is recommended that you do thorough research before picking a scheme. Also, make sure that you choose a scheme that matches your risk appetite and investment goal. You may consult an expert financial investor for better advice.


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