Myths vs facts about mutual funds

53 Views

Mutual funds are a versatile investment option that offers diverse benefits to investors.However, certain misconceptions or prevalent myths surrounding themcan deter potential investors. Debunking these myths and understanding the facts can empower individuals to make an informed financial decision about their investments. Take a look at some of the most common myths about mutual funds and the truth behind them.

Common myths about mutual funds

Myth 1: Extensive market knowledge is necessary for investing in mutual funds.

Fact: Mutual funds are managed by professional fund managers who handle the intricacies of market research and investment decisions. Whether you are a novice or an experienced investor, you can easily invest in mutual funds without needing deep market expertise. By choosing funds aligned with your financial goals and risk tolerance, you get the benefits of mutual funds without monitoring markets everyday.

Myth 2: Mutual funds are for long-term investments only.

Fact: While long-term investments often yield higher returns thanks to the power of compounding, mutual funds also cater to short-term goals. There are different kinds of mutual funds, including liquid funds and short-term debt funds, tailored for individuals looking for short-term profits. This flexibility allows you to invest in mutual funds based on your specific financial needs and time horizon.

Myth 3: Mutual funds guarantee returns.

Fact: Mutual funds do not provide guaranteed returns since they are investments linked to the market. The performance of a mutual fund depends on its underlying assets, such as stocks, bonds, or a mix of the two.

However, understanding mutual fund types and their risk levels can help you manage your expectations and make sound investment choices.

Myth 4: Large amounts are needed for investing in mutual funds.

Fact: One of the most appealing features of mutual funds is their affordability. You can start an SIP investment with just Rs. 500. This makes mutual funds accessible to individuals across different income brackets, enabling them to build wealth gradually.

Myth 5: All mutual funds are risky.

Fact: The risk level of a mutual fund depends on the type of fund you choose. Equity funds are subject to market volatility and generally considered high-risk, while debt funds are relatively stable and suited for conservative investors. Hybrid funds find equilibrium between risk and return, providing a moderate level of risk.

Myth 6: Mutual funds are tax-free.

Fact: While mutual funds offer tax-saving options, not all investments are exempt from taxation. For instance, ELSS funds provide tax benefits under Section 80C, but equity and debt funds attract capital gains tax. Short-term gains are taxed at your income tax slab rate, while long-term gains have lower tax implications.

Myth 7: Redeeming mutual funds is complicated.

Fact:Most mutual fund platforms offer quick and hassle-free redemption processes, making them a convenient investment option. The redemption process varies based on the type of fund but is generally straightforward, ensuring access to your funds when needed.

Conclusion

By breaking these misconceptions and focusing on facts, you can confidently invest in mutual funds to achieve your financial goals. Whether it’s understanding the types of mutual funds or their tax implications, staying informed is the key to making the most of your investments.