Five Mutual Fund Myths That You Should Overcome

Mutual funds, despite a well-regulated way of investing, continues to be engulfed with several myths. It is these misconceptions that prevent potential investors from investing in this asset class. 

Here are some of the common mutual fund myths listed out to empower investor fraternity in overcoming them. 

Image Source - Ognian Mladenov via Flickr 

Myth 1 - Meant for big surpluses

Many individuals believe that investing smaller sums into mutual funds is futile unless they have a sizeable surplus to spare. However, this notion is downright misplaced because mutual funds work as effectively for smaller sums as they do for larger sums. In fact, postponing investments might mean eroding the true value of investment surplus itself. 

Let’s understand, how delaying investments can hurt return potential.

Investment Amount Per Month	Postponing 1 Yr	Postponing 3 Yrs	Postponing 5 Yrs
INR 500	₹ 6,323.64	₹ 21,341.56	₹ 40,185.05
INR 1000	₹ 12,647.29	₹ 42,683.12	₹ 80,370.10
INR 2000	₹ 25,294.57	₹ 85,366.23	₹ 1,60,740.20
INR 5000	₹ 63,236.43	₹ 2,13,415.58	₹ 4,01,850.51

Myth 2 - Expertise 

Investors shy away from mutual funds due to lack of expertise or knowledge about mutual fund offerings. Questions like ‘What if I have chosen a wrong scheme’ or ‘If I will lose money’ limit their exposure to mutual funds. The only way to deal with this myth is to seek advice from a qualified adviser and ask more questions to steer away from doubts. 

Myth 3 - Ratings are the best tool to judge performance

Ratings or rankings of a fund do provide information on a scheme’s historic performance but it does not guarantee sustainability of performance. A top-ranked fund could drop to the bottom if there is a change in fund manager, portfolio holdings or any other key aspect directly related to its performance. Ratings should not form the sole basis of choosing an investment but other factors such as investment goal, fund manager, risk, expense ratio, etc. should also be evaluated.

Myth 4 -SIPs are always better than lump sum

Drive to channelise even smallest of investments into mutual funds through SIP gradually led to a myth that SIPs are superior to lump sum. However, it is not the case always and there are several pros and cons of both modes of investment. SIP investment are susceptible to market losses like lump sum investments, perhaps in a less volatile way. But, this fact alone should not render lump sum as an unworthy mode of investment. Scenarios, where lump sum can be appropriate over SIP, has already been discussed in our previous blog. 

Myth 5 - Mutual Funds are only equity-oriented

It is not uncommon that investors interpret mutual funds synonymous to equity investments. This is the reason why those who have burnt their hands in stocks prefer to stay away from mutual funds as well. However, this is not true as mutual funds offer various schemes including debt and liquid schemes. Mutual funds serve not only as an alternative to equity stocks but also to fixed deposits, savings account and gold. 

If you have been gripped by any of these mutual fund myths then its time to break away from it and start investing.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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