Mutual funds have struck a chord with young professionals for their capacity to generate higher returns in the future. However, some still rely on traditional investment options or savings for post-retirement life. Their reluctance is attributable to misinformation about mutual fund investments. First, determine your risk appetite, investment horizon and financial goals, and only then invest in a mutual fund. However, beware of the six myths associated with mutual funds before beginning your investment journey:
1. They are expensive:
The first myth that needs busting is that mutual funds are expensive. Hence, some believe that significant capital is required to invest in them. However, depending on the mutual fund variant, you can start your investment journey with an investment amount convenient. If you start investing in your mutual fund scheme through the SIP mode, you can increase your monthly investments with the step-up SIP option. However, you must know the investment amount before you opt for mutual funds. For that, you can use an online mutual fund calculator.
2. Suitable for experts:
Investing in mutual funds is one of the best ways to acquire wealth in the long term, even if you have limited knowledge of the market. Besides, you don’t need to worry about managing your mutual fund investments. That responsibility falls on professional fund managers.
3. A Demat account is necessary:
Although it is advisable to have Demat accounts for investing in a mutual fund, they are not mandatory. Numerous AMCs allow you to invest in their mutual funds physically. When you invest in a mutual fund scheme physically, the AMC will give you a physical certificate that has details of your investments.
4. Returns are guaranteed:
Mutual funds invest in market-linked instruments like equities, whose performance primarily relies on market movements. Therefore, mutual fund schemes usually do not guarantee returns. That said, debt funds may offer more stable returns than equity funds that invest in the equity market. However, equity funds might offer inflation-beating returns over time.
5. Suitable for long-term investment:
Another common mutual fund misconception is that they are suitable only for the long term. While financial experts suggest investing in mutual funds for a long-term goal, not all funds suit a long-term investment horizon. You can also invest in short- and medium-term mutual funds. You also have the option of investing in overnight funds. As the name suggests, these funds have short investment tenures.
6. Not for students:
The idea that mutual funds are suitable only for working professionals is another one of the many mutual fund myths. However, the fact is that mutual funds are also ideal for students. You can afford to take investment risks when you’re young, making equity mutual funds suitable for students. Also, you may accumulate high returns on your investments by starting early.
Debunking mutual fund myths will not dissuade you from mutual fund investing. A mutual fund investment may create wealth over the long term. So, what are you waiting for?