Are you new to the investment world? Irrespective of being an unexperienced investor, you must have surely stumbled upon the term ‘mutual fund investment’. At some point, you might have even found yourself scratching your head over the dilemma of whether you should invest in mutual funds online or not.
If you haven’t started investing in mutual funds yet just out of laziness, then it is suggested that you start now. However, if you haven’t started yet due to myths about mutual funds investment that you could have come across, then rest assured, we will bust the most common of these myths for you.
A mutual fund is undoubtedly one of the best tools for investors to create wealth. Nonetheless, according to a report by the Association of Mutual Funds in India (AMFI), less than 1.5% of the Indian population has invested in mutual funds.
This might be because Indians are conservative investors and are known to invest a huge chunk of their hard-earned money in low-risk instruments such as gold, fixed deposits, etc. They often discard mutual funds as a high-risk instrument with no assured returns attached to it.
However, these myths often rip the investor of the potential of creating wealth in the long-term. Let us address them.
Myth 1. Investing in Top-Ranked Funds Equals Reaping Guaranteed Returns
Mutual fund investments are subject to market risk and an individual’s return on the portfolio depends on its performance. Mutual funds invest their corpus in various financial instruments, which can be volatile depending on market fluctuations.
This means that the positioning of your funds could appreciate or depreciate, depending on the market scenario. Thus, top-ranked mutual funds might not necessarily sustain their title in the future. This also makes the returns not guaranteed.
Myth 2. Lower NAVs Make for Better Investments
NAV stands for Net Asset Value in the world of mutual fund investment. The NAV of a mutual fund is co-related to the net value of its market holdings, i.e. the market value of its assets minus the liabilities.
It represents the intrinsic value of a particular fund at a given time. You should instead look at the NAV deviation over a particular period. A fund with a higher NAV might just produce significant returns if it performs well in the markets.
Myth 3. You Require a Large Amount to Invest in Mutual Funds
This is a common notion among a vast chunk of investors. You don’t need to have high income or own a lot of money to invest in mutual funds. Equity-linked savings scheme or ELSS can be purchased at an amount as low as Rs. 500 per month through the SIP (Systematic Investment Plan) method.
You can invest such amounts periodically, such bi-weekly, monthly, quarterly, etc. You can use a SIP Calculator to calculate the returns you would earn on your SIP investments and also tells you how much you would need to invest every month to earn a target corpus. This way, you can achieve your financial goals by investing a small amount regularly over a long period, thanks to the power of compounding and rupee-cost averaging.
Additionally, you do have the option of investing a lump sum amount in mutual funds.
Myth 4. Stop SIP Investment During a Market Crash
Akin to completing a medical treatment course to be completely cured of whatever is ailing you, your SIP investment must be continued through its term to achieve the desired results. Your SIP investment is a customized investment plan for the long-term.
Thus, you should not stop it even when a market is crashing. Investors are advised to continue with their SIPs without paying much heed to market trends. If a particular fund has been consistently performing well and you have done your research and believe it cannot sustain, you can withdraw from that fund and deposit the investment in another fund.
However, with ELSS funds, you would have to wait for the 3-year lock-in period to complete to avail the tax benefits.
To fulfill the growing demands of your lifestyle, you should make enough efforts to secure your future. Investing in mutual funds will help you realise your dreams. The benefits of mutual funds can be reaped by each and every individual, irrespective of their experience in the investment world. So be wise, and start investing today.