Don't Let Misinformation Cost You Your Future
The financial world is full of noise, misconceptions, and outdated advice. We have compiled the most common mutual fund myths we hear from investors every day. Click to reveal the facts.
One needs a large sum to invest in Mutual Funds.
One does not necessarily need to invest a huge amount in Mutual Funds. You can start investing in mutual funds with an amount as low as ₹500.
NFOs (New Fund Offers) are better than existing schemes.
NFOs can be bought only during the offer period, while an investor can purchase units of an open-ended fund anytime. You can very well choose an existing fund with a proven, consistent track record over a New Fund Offer.
You need to time mutual fund investments.
Mutual Funds are for investors, not traders. Traders time the market for buying and selling. The goal of a Mutual Fund is to build wealth over a period of time by holding a portfolio and enhancing profits through compounding. As Peter Lynch said, 'Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.'
Mutual fund investments are only for youngsters.
Mutual Funds are for any investor who wants to earn better risk-adjusted returns. Selection of the fund depends on the risk appetite and time horizon. A senior citizen can take less risk in a debt portfolio, whereas a young investor can take higher risk in equity. There is a wide variety of funds for every age group.
All NAV-linked products are highly volatile.
The volatility of a fund is related to its underlying asset class (equity, debt, gold, etc.). The daily NAV is simply the aggregate value of these individual securities. A fluctuating NAV indicates market movement, but it is not inherently 'highly volatile' unless the chosen asset class is.
Mutual fund investments cannot be pledged as security.
Mutual fund investments can easily be pledged as security/collateral with banks and financial institutions to avail loans.
Investing in a fund managed by a 'Star' Fund Manager guarantees success.
Markets are dynamic. While a 'Star' fund manager may have delivered high performance in the past, it does not guarantee future success. Process-driven fund houses are generally more reliable than individual star managers.
Buy MF schemes only when the markets are rising.
It is incredibly difficult to time the market—today's high could be tomorrow's low. You should be a regular investor (via SIPs) to benefit from Rupee Cost Averaging rather than trying to speculate on market movements.
Mutual funds are not transparent.
Mutual funds are incredibly transparent. Under SEBI's strict regulations, mutual funds are required to regularly disclose their portfolios, changes in management, expense ratios, and dividend declarations.
The need for liquidity deters you from investing in mutual funds.
The mutual fund industry offers products for stability, income, growth, and high liquidity. If you need highly liquid funds, you can opt for Liquid or Overnight funds, which allow withdrawals usually within 24 hours.
All mutual funds qualify for tax deduction.
No, not all mutual funds are eligible for income tax deductions. Only a specific category called Equity Linked Savings Scheme (ELSS) qualifies for tax exemptions under Section 80C of the Indian Income Tax Act. They come with a mandatory 3-year lock-in period.
Mutual Fund investments are for experts.
Mutual Funds are investment vehicles for everyone. Whether you are a financial expert or a complete novice, mutual funds are managed by professionals on your behalf, making them perfectly suited for beginners.
Mutual Funds are only for those who like to invest in the stock market.
Investing in mutual funds is not confined to the stock market. There are mutual fund schemes that invest entirely in the Fixed Income space (money market, government bonds, corporate debt), catering to conservative investors.
Buy a fund once it announces a dividend.
Dividends in mutual funds are simply paid out of the accumulated profits of your own investment—they are not a 'bonus'. It is much more worthwhile to consider performance track records and fund management rather than chasing dividend announcements.
Performance of funds is directly related to the stock market.
While equity funds are linked to the market, active fund managers select a specific basket of 30-50 stocks designed to outperform broader indices like the Sensex or Nifty. Often, active funds can mitigate losses better than the broader market during a downturn.
Choosing dividend pay-out or growth option is the same in all funds.
The Growth option reinvests profits, giving you the power of compounding for long-term wealth creation. The IDCW (Dividend) option pays out profits, which is only ideal if you require a steady, short-term income flow. They serve entirely different financial goals.
Buying physical gold is safer than investing in gold funds.
Physical gold carries high risks of theft, making storage and insurance expensive. Gold Mutual Funds or ETFs eliminate theft risk, guarantee 99.5% purity, and can be easily tracked and sold at exact market rates without making charges.
It’s difficult to track your investments.
Mutual funds offer consolidated account statements (CAS) that track your exact investments, NAVs, and dates. AMCs provide real-time dashboards, and distributors like Artha Vridhi provide centralized portfolio trackers.
All mutual funds have a lock-in period.
Most open-ended mutual funds have absolutely no lock-in period and can be bought or sold on any business day. Only specific tax-saving schemes (ELSS) have a 3-year lock-in, and close-ended funds have a fixed maturity date.
One needs to be rich to invest in mutual funds.
Mutual Funds are the simplest way to create wealth from scratch. You can begin investing through a Systematic Investment Plan (SIP) with an amount as low as ₹500 per month.
All equity mutual funds automatically diversify across various sectors.
Not necessarily. While multi-cap or flexi-cap funds diversify across sectors, 'Sectoral' or 'Thematic' funds invest only in specific industries (like IT or Pharma) and carry higher concentration risk.
Funds with a higher NAV have reached their peak.
NAV is simply the market value of the underlying assets divided by the number of units. A high NAV simply indicates that the fund has been performing well for a long time. The percentage return on your invested amount is what matters, not the face value of the NAV.
Mutual funds are only for long-term investing.
Mutual funds cater to all time horizons. Liquid and Ultra-Short Duration funds are perfect for parking money for a few weeks or months, while Equity funds are designed for long-term wealth creation.
You need to have a Demat account to invest in Mutual Funds.
You do not need a Demat account to invest in mutual funds. You can invest directly via the AMC, or through a registered Mutual Fund Distributor (like Artha Vridhi) using a simple Statement of Account (SoA) format.
Mutual Funds with a lower NAV are cheaper and better to invest in.
NAV is irrelevant when comparing funds. If you invest ₹10,000 in a fund with a ₹10 NAV, you get 1,000 units. If it grows by 10%, your value is ₹11,000. If you invest in a fund with a ₹100 NAV, you get 100 units. A 10% growth still equals ₹11,000. Growth percentage is what counts.
Redeem funds with a high NAV and reinvest in schemes with a low NAV.
Doing this means you are exiting a proven, high-performing fund to buy an unproven fund just because it looks 'cheaper'. This disrupts your compounding and often leads to lower portfolio returns.
Debt funds are also impacted by equity market movement.
Debt funds invest in Fixed Income instruments like T-Bills, Government Securities, and Corporate Bonds. They do not invest in the stock market and are therefore largely insulated from equity market volatility.
Mutual fund investments are riskier than direct stock investments.
Mutual funds are inherently less risky than direct stocks because they are diversified across dozens of companies and are actively managed by professional experts whose full-time job is risk mitigation.
It’s not safe to transact online.
The mutual fund industry utilizes highly secure, bank-grade encryption platforms regulated strictly by SEBI and the RBI. Online transactions go directly to the AMC's designated bank accounts, making them incredibly safe.