Are you among those who are still unaware of mutual fund statement or among those who have lots of myths about it? Then you have come to the right place. Today I am going to discuss with you 11 shocking mutual funds myths. Plus if you are newbie to mutual funds investment and SIP, this article will provide you with all the information you needed to get a clear picture of Mutual fund Investment. So, let’s get started.
11 Shocking Mutual Funds Myths
Myth 1 – SIP is an investment product
There are many people in India who thinks that SIP is an investment product, hence they say that they want to invest in SIP. However, in reality SIP is systematic investment plan and a way through which one invests in Mutual funds. If you go for SIP, a certain amount is deducted on regular intervals and is invested in mutual fund on the date specified by you.
Myth 2 – In case of SIP, all the money can be withdrawn from ELSS after 3 years
This is another mutual funds myths that if they are doing SIP in ELSS, then they can withdraw all of their money after 3 years. However, this is completely wrong. Each investment that you made can be unlocked after the period of 36 months from the date of investment. For example, if you made SIP in April 2017, then you can withdraw that money get unlocked on May 2020.
Myth 3 – SIP cannot be stopped once started
There is another myth about SIP that if they start SIP then its a commitment that one cannot break in between. If they break it, then they have to face some penalties.
There are few times when people are unable to pay the SIP on regular intervals due to their prior arrangements. However the reality is that on can stop the SIP whenever they want it to stop. So, need not to worry about SIP of 5, 10 , 20 or 30 years. You can stop it by just sending a notification.
Myth 4 – Getting dividend in mutual fund is better than growth option
When you start investing in mutual fund, you are asked to choose between dividend and growth option. Most of the investors think that dividend is better option as they get extra income. However, this is completely wrong. Once the dividend are paid, the NAV of the investment comes down. If the fund is not equity fund, then the tax is paid by the Asset Management company which lowers down the return of the investor. On the contrary, in growth option, there is no change in the fund.
Myth 5 – Mutual Funds and Stock Market are same
Most of the investors think that mutual funds are highly risky because they invest in stocks. Well, it is somewhat true. Only equity investment funds are risky as they are invested in stocks. There are various categories of mutual funds available such as debt mutual funds which do not invest in equities and hence they are not risky.
Myth 6 – Mutual Funds are Long Term Investment
Mutual Funds Investments always market themselves for long term. However it is not possible in all the cases. There are short term mutual funds as well such as liquid mutual funds and short term debts whose maturity period is 6 months to 2 years.
Myth 7 – Big amounts are invested in Mutual Funds
In India, middle class population is large. They have not huge amounts of money to invest. They think that mutual fund is all about investing huge amounts of money and is for big investors. However this is completely wrong. One can even start the investment of Rs. 1000 per month of the funds. If you want to invest only one time, then the limit is Rs. 5,000.
Myth 8 – There are guaranteed returns in Mutual Funds
If you are expecting that, you will get guaranteed mutual funds just like fixed deposits. Then you are wrong. This is another reason that makes investors away from mutual funds. There are various categories of mutual funds available that offers a wide range of return.
If you invest in equity mutual funds, then you get returns from a range of 50% to 100%. On the other hand, a debt fund offers 5 to 15 % of returns.
Myth 9 – If Mutual Fund company get bankrupt, then investor will loose all the money
Mutual funds are highly secured, It is regulated by SEBI, so it becomes impossible that you will ever loose the money in case any scam occurs or company is bankrupted. You money lies with the custodian and is fully secure.
Myth 10 – Past returns means Future Returns
Another mutual fund myth which is completely wrong. If you got better returns in past, it doesn’t mean that you will also get returns in the future. Well, there is no assurity about it. Whether the fund will fetch returns or not it depends upon the decision made by the fund manager.
Myth 11 – Investing in more Mutual Fund means Diversification
Making investment in more and more mutual fund doesn’t mean that you are diversifying your investments. If you invest in equity mutual fund, then your money is invested in near about 50 to 100 stocks. This investment is diversified. However, if you made another investment, then most of the stocks will be common. There is hardly any diversification. Now you again invest in other fund, and then other, a time will come when there will be no diversification.
So, that’s all with mutual fund myths that stops you from investing in mutual fund. I hope now you won’t run away from mutual funds and invest in it and diversify your investment.