The world of mutual funds has numerous myths surrounding it. By creating irrational fear and concern, these myths cause investors to stay away from fully realising the advantages that mutual funds have to offer. Here we look into some of the biggest myths surrounding mutual funds and enlighten you on the facts about investing in them.
Myth: “Mutual funds are risky because they invest only in the shares or equity market”
Truth: There are numerous mutual funds available in the market. Depending on your risk appetite, you can select a mutual fund that fits your profile and goals. For instance, if you have a low-risk appetite, you can invest in a debt fund that primarily invests in government bonds, securities and fixed income investments. If you want to invest in gold, worry not! Some mutual funds also invest purely in gold. Thus, all mutual funds do not invest in the shares or equity market.
Myth: “You cannot invest in mutual funds for a short term”
Truth: You can invest in mutual funds for any duration: short, medium or long term. If you are looking for short- or medium-term gains, you can consider liquid and short-term debt mutual funds. Ideally, long-term financial objectives can be met with equity funds. Hence, if you are looking to save money for a short period, such as your birthday or anniversary next year, you could look into short-term debt funds or liquid funds. However, if you are building wealth towards your retirement, equity funds can be your best bet.
Myth: “To invest in mutual funds you require a large sum of money”
Truth: Most investors who are unaware of the mutual fund industry believe that a considerable chunk of money is required to invest in mutual funds. On the contrary, you can invest in a mutual fund with as little as Rs. 500 each month through the Systematic Investment Plan (SIP) or Rs. 5000 as a lump-sum mode. By investing small amounts regularly, you will be able to meet your financial goals eventually.
Myth: “If there is volatility in the equity market,your debt funds also go for a toss”
Truth: Equity funds and debt funds invest in distinct categories of instruments and thus have an entirely different portfolio and fund management strategy. Hence, if you are looking to avoid market fluctuations and volatility of equity funds, debt fund can be a safe choice.
Myth: “Discontinue SIPs when markets begin to rise”
Truth: Your SIP investment in mutual funds must continue throughout the tenure to accomplish your financial goal or your desired target. It can be futile to time the market as markets are highly volatile and predicting its outcome is a tricky job. Hence, regular investments can help you reap the advantages of rupee cost averaging. If you are saving towards retirement, which is a long-term investment, market fluctuations that take place regularly should not affect you.These are short-term changes that are unlikely to impact your eventual financial objectives.
You can easily invest in mutual funds through your demat account registered with your broker such as Kotak Securities. Investing in mutual funds is one of the easiest ways of financing your future. By dispelling the myths mentioned above, you can make an intelligent decision and invest in the funds of your choice, without any doubts.