This year’s survey, encompassing 1675 respondents aged between 22 and 45 years across India, reveals that mutual funds rank as the second most-preferred investment in the country, chosen by 54% of the participants. Mutual funds, also known as MFs, stand out as favored choices for achieving financial goals due to the benefits they offer. Despite their popularity, certain myths persist around mutual fund investments, potentially clouding investor judgment.
If you are considering entering the realm of mutual fund investments, it is crucial to dispel the following myths:
- Extensive Financial Knowledge Requirement:
- Myth: Mutual fund investments demand in-depth financial knowledge.
- Reality: Most mutual funds are managed by expert fund managers who implement investment strategies on behalf of a fund house. Investors need not be financial experts to engage in mutual fund investments.
- Large Initial Investment Requirement:
- Myth: A substantial amount of money is necessary to start a mutual fund investment.
- Reality: Mutual funds, known for their accessibility, offer options like Systematic Investment Plans (SIP) that allow investments with amounts as low as Rs. 500 per month. Lump sum investments may have varying minimum amounts but generally start around Rs. 5,000.
- Guaranteed Returns Assumption:
- Myth: Mutual funds provide guaranteed returns.
- Reality: Mutual funds are market-linked, subject to performance fluctuations based on market movements. Returns are not guaranteed and depend on market performance. Equity funds may offer higher, potentially inflation-beating returns, while debt funds provide more stable but lower returns.
- Repeated KYC Requirements:
- Myth: KYC (Know Your Customer) needs to be completed multiple times for mutual fund investments.
- Reality: KYC verification is a one-time process, typically required by the fund house. It does not need repetition unless investing with a different fund house. Financial advisors may request KYC for investments with multiple fund houses. Online platforms often provide e-KYC for convenience.
- Not Ideal for Young Investors:
- Myth: Mutual funds are not suitable for young investors.
- Reality: Young investors, benefiting from time and higher risk tolerance, find mutual funds, especially equity funds, ideal. With a longer investment horizon, they can leverage compounding to build wealth effectively.
- Top-Rated Mutual Funds Guarantee Higher Returns:
- Myth: Investing in top-rated mutual funds ensures higher returns.
- Reality: Mutual fund ratings consider various factors, and ratings may change. A top-rated fund does not guarantee superior returns, as performance depends on dynamic factors.
- Exclusively Equity Market Investments:
- Myth: Mutual funds solely invest in equity markets.
- Reality: Various mutual fund types cater to different investor preferences. Equity funds predominantly invest in stocks, debt funds focus on debt instruments, and hybrid funds strike a balance between equity and debt instruments, offering diverse risk options.
