Five Mutual fund Myths that keep People away from Investing in India - FaqLabs

Saturday, 4 November 2017

Five Mutual fund Myths that keep People away from Investing in India

mutual fund myths

When it comes to investing earned money every individual takes the steps very carefully especially salaried individuals who earn and try to save every possible penny. 

Fearing their money would shrink; most people prefer investment vehicles that are traditionally considered safe even if they don't return heavily. It is sometimes correct also to make sure you are safe with your investments. 

But it wouldn't be wise to blindly go for something that is in use for long even without exploring investment options that are relatively safe and also would return significantly.

Mutual funds in India have returned handsomely for past decade and with good amount of safety. Still most people find it difficult to trust this investment option and they opt for other safe fixed low return options. Most of the times people avoid mutual funds because of the things or disadvantages that they have heard from others or the myths that exist about mutual funds.

In this post we will see about various myths that exist regarding mutual funds and because of which people stay away from them and hence miss on a golden opportunity of making handsome money.

1. Needs lot of money to start investing in mutual funds. But it is not true.

mutual fund needs lot of money myth

First and the one that goes through a common man making monthly money through salaries is; it needs lot of money to start the investment in mutual funds. 

Mutual funds although being around for years now people still feel mutual funds are only for rich and needs heavy amount to start the investment. Fact however is one can start the investment with as low as Rs 500 per month. 

One can start the investment as an sip (systematic investment plan) in mutual funds which means every month a fixed amount of money will be deducted from the account to buy the mutual fund units. 

One can also buy fund units as and when need using lump sum amount. With SIP one can reap the fruit of compounding interest and can make significant wealth over a period of time with a small monthly deductions.

2. Mutual funds only deals with stock market. This is not true. 

mutual funds deal only with stock market myth

With mutual funds mostly dealing in stocks people tend to think mutual fund only invest in stock securities and hence people tend to stay away from mutual funds. With market up downs, news making headlines their is a sense of fear among people that stocks can make huge losses and hence they think the same will happen to mutual funds as well.

People fail to understand that mutual funds not only deals with stock buying but also into other options like debt. Mutual funds can be balanced which can avoid stock crash anxiety among investors. 

Also people need to understand that when you buy stocks as an individual you are putting money on one stock but mutual funds do not put the whole money in one, two or three stocks but they do it in hundred's of stocks which makes them diversified and hence reduce the risk even in falling market. Moreover mutual funds over a long period tend to make lot of returns.

3. You need to be an expert before buying mutual funds. 
Truth : You absolutely need not be. Fund managers Need to be !

need to be an expert in stock myth

Although mutual funds invest in stocks debts and other options, stocks is very much synonym with mutual funds and hence one starts to feel that you need to be an expert to buy mutual funds. However, this is not the case you need not be an expert in stocks, shares. You need not follow or track company quarterly results. However you will need a fair idea about the fund that you will invest in. It structure, major companies that the fund invests in and the past history of the fund will be enough to go ahead with the investment.

All you have to do is figure out the AMC that is best in mutual fund business. Figure out your risk appetite and pick the fund and start the investment. 

You either go for the SIP option or buy units using lump sum as and when you have the money. Once you buy the right fund scheme you can track its performance and carry on with it or redeem when needed.

4. Money invested will be locked for long time. 
Truth : It is much easier to withdraw the invested amount.

money is locked for long term myth

When you hear the word fund it makes you think the money you put in will be locked in for long time and you will not be able to get your own money when needed the most. In reality this is not the case. Most funds (except ELSS) you can redeem the mutual fund units/amount as and when you need.

It may take few days to get the amount in account but it is not at all difficult to get your money back. Depending on the scheme there can be charge called exit load that may be applied which is very small amount and given the benefits mutual fund give it is nothing to pay the exit load. It could be hardly 1% or less.

5. Complicated process to start the investment. 
Truth : It is not. One can do all the process sitting at home; online.

mutual funds are complicated

Most people stay away from Buying mutual funds because they think its a complicated process. But it is not!. With all things coming online, investing in mutual funds is just a 20 minutes job and you do not even have to visit a bank to do that.

With online options available you can create you user on any of you chosen AMC and the investment process begins. All you have to do is follow their steps and provide scanned documents or post the needed documents. The best thing is that you can track your schemes online and redeem or switch as and when you want online.

These are some of the myths, misunderstanding of the mutual funds that keep young people specially from India from investing in mutual funds. One should overcome this thinking and utilize this golden opportunity to make money over long time.

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