In India, in the past decade, the mutual fund industry has been growing at a tremendous rate, but it still counts only 10% of the overall GDP (Gross Domestic Product) of the economy. While in developed economies such as the US this industry contributes as high as 30-35% to the GDP.
Amidst the increasing rate of investment in this segment, there still lies a few myths related to mutual fund investment. We are discussing some here –
- Mutual Fund Investment demands Huge Amount – This is wrong you can start your investment from as low as Rs 500 per month through SIP. You can always increase this depending upon the increase in your income. If your fund earns an annualized return of 12%, even a modest sum of Rs. 2,000 a month can grow to Rs. 20 lakhs in 20 years.
- One must invest when the market is at its peak – The best time to invest is when you feel like investing and you have money. It is easy to predict the market when is it going to get up or down, but your investment should not be dependent on that. It’s the nature of the market to be volatile.
- Only Mutual Fund Pandits can do the investment – You don’t need to have all the knowledge of mutual funds these funds are managed by professional fund managers they will always help you to find best funds and give you the right advice. So, don’t feel hesitant about investing due to a lack of knowledge.
- Mutual Funds means Equity – This is the most common misconception that mutual funds invest in stocks. This is not true, people often feel hesitant about investing as they feel they will lose everything when the market is down. Mutual funds have lots of other categories where you can invest. The three major categories of mutual funds are Equity schemes (Invest predominantly in the stock market and related instruments), debt schemes (invests predominantly in the debt instruments), and hybrid schemes (invests in a mix of equity and debt instruments). So, from these, you can choose one that best matches your investment style and investment goals.
- SIP is risk-free – No, this is not true what is true is that SIPs spread out the risk potential and therefore are apt for high risk-high return funds. But NO investment can classify as 100% safe. So, before investing make a realistic assessment of the risk you can take or rather say bear.
- A 5-star rated fund is safe – Market investment is a volatile industry where nothing is permanent, and everything keeps changing. Excellent past performances are no guarantee of the future good performances. So, it’s good to take some ideas from past performances but it's not at all a good idea to rely on those.
- All mutual funds are tax-savvy – No, only ELSS (Equity Linked Saving Schemes) funds are tax-savvy under Section 80C of Income Tax Act.
So, these were few myths that run around the corner when we talk about mutual fund investment.
*Mutual Fund investment is subject to market risk, read all scheme related documents carefully before investing.