Investors need to have the correct information for a fair understanding of investing in MFs.
5 Common Myths About Mutual Funds Busted
- Large sum required to invest
- SIPs mean you will never lose money
- You need to be an expert
- MFs invest only in equities
- You can’t go wrong with five-star rated funds
1. Large sum required to invest:
No, you can start by investing as little as Rs 500 per month through systematic investment plans (SIPs) and gradually increase your investment as your income rises. You can build a huge corpus over time with a disciplined approach and regular investing.
2. SIPs mean you will never lose money:
Systematic investment plans are the best way to invest in equity funds because they reduce the risk and average out the investment costs. But this does not mean that SIP investors cannot lose money. So make a realistic assessment of the risk you are willing to take before putting money in equity funds-whether a lump sum or through SIPs.
3. You need to be an expert:
It is a fallacy that you need to be an expert to invest in MFs. In fact, they are the best options for those who don’t understand investments. The investment is managed by a professional, i.e., a fund manager or adviser, who does all the research and analysis to help you choose the best possible scheme.
4. MFs Invest only in Equities:
Investors who do not know much about MFs often assume that funds invest only in equities. Well, if you want higher returns and better tax treatment than fixed deposits, but aren’t comfortable with the risk that comes with equity MFs, you can look at investing in debt funds. There are also balanced funds that invest in both equity and debt, and funds that invest in gold.
5. You can’t go wrong with five-star rated Funds:
Even though past performance is no guarantee of future returns, the star ratings of funds by MF trackers like Morningstar and Value Research provide some idea to investors. However, do keep in mind that these ratings keep changing and need to be paired alongside performance to get a suitable idea about a fund’s prospects.
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