5 Common Misconceptions About Mutual Funds

• 12491
• 

“Opportunities are everywhere, you just need a clear vision”. In life, you must have come across several opportunities, which if chosen, would have made a great difference. So, what is one thing that restricts us from grabbing these opportunities at the right time? Well, the answer to this question is ‘misconceptions’. The misconceptions that have been created about these generate unnecessary fear among us, the consequences of which we further face.

One such opportunity that people are missing out due to some misconceptions is mutual funds. Due to some common misconceptions, a lot of people are still restricting themselves from getting the full benefits from these instruments. So, check some of the major misconceptions that investors have about mutual funds and see if you have any.

1. Only Market Experts Can Invest in Mutual Funds

A lot of people have a common misconception that mutual fund investments are only for people who have extensive knowledge of the securities market. One needs to know about every aspect of the stock market to have a successful investment journey.

Well, it is not at all correct. One of the primary aims behind the start of mutual funds is to help people in getting the benefits of the securities market without even having in-depth knowledge. These schemes are managed by highly experienced fund managers, who hold great knowledge of the market. So, you just need to have some basic knowledge of how the different mutual fund works, and how to choose the right scheme. This will help you in choosing a suitable mutual fund and to avoid panic during unexpected behavior.

2. Mutual Funds are Only for the Rich

This is yet another common misconception that people have about mutual funds. A lot of investors restrict themselves from investing, just because they think that the investment amount should also be big if high growth is required.

This is not at all true. Mutual funds are one of the most investor friendly investment options and provide investors with different financial backgrounds a disciplined way to achieve their financial goals. Today, a person can start investing in mutual funds with as low as Rs. 500, and a number of schemes are also providing SIP investments starting with just Rs. 100. So, you can invest in these instruments without affecting your budget.

3. Mutual Funds are Just Limited to Equities

Mutual Funds just invest in the stock market is one other common misconception that people have about these investment options. People usually restrict themselves from investing because of the fear that they will lose their investments if the market underperforms.

This is not at all right. Mutual Funds have a lot of different categories which invests in different instruments. The three major categories of mutual funds are Equity schemes (Invest predominantly in the stock market and related instruments), debt schemes (invests predominantly in the debt instruments), and hybrid schemes (invests in a mix of equity and debt instruments). So, from these, you can choose one that best matches your investment style.

4. All Mutual Funds Are Risky

Risk is one factor that plays a major role while selecting any investment instrument. When it comes to mutual funds, a lot of people holds a misconception that these instruments hold very high risk and if the market shows a downturn, huge losses can be faced.

Well, as we discussed in the above point that mutual funds have different categories, which invests in different types of instruments. Now, as these are investing in different instruments, the risk associated with these schemes is also different. So, looking at the type of scheme you can know the risk associated with it and can make the investment decision accordingly.

Also Read: How to Analyze Risk for Mutual Funds Investments?

5. Mutual Funds With Lower NAV Are Better Choice

A lot of people think that if a mutual fund is bought at a lower price, they can enjoy better growth in the long term. A common thought that can be seen in a lot of new investors is that, if they purchase a mutual fund scheme at NAV of Rs. 10, and it gets 20, which as per them will not take that much time, the money will get double. Not only this, but they also think that at lower prices much more units can be bought, which means more growth. This is one of the major reasons that beginners often end up investing in new schemes without much knowledge then later face the consequences.

While investing or say picking a mutual fund scheme, it is necessary that you pick the mutual fund on the basis of different factors such as investment style, portfolio, the risk associated, etc. Also, when you see or analyze the growth of a scheme, make sure that you do it on the basis of returns in percentage and not the size of NAV.

These are the 5 major misconceptions that people usually have in mind, and restrict themselves from investing in mutual funds. I hope if you have any of the following doubt in mind, it got cleared. Now, if you are planning on investing then make sure that before picking a scheme, you do proper research. And, before making the final decision, it has to be made sure that it matches with your own investment goal and risk appetite. In case you face any problem while understanding any scheme, or making the selection, feel free to connect with the experts at 9660032889.