5 common misconceptions about Mutual fund investments: A clear vision is needed to take up the opportunities that strike at one point in time. However, we keep waiting for the right moment which usually rarely hit our door.
This fact is applicable for all aspects of life including the decisions we take regarding investment in mutual funds. There are many misconceptions regarding mutual funds which prevent us from investing in the market.
Let us find out some of these common misconceptions that many investors have about mutual funds. Check out even if you are part of this bandwagon and have some misconceptions of those listed below.
1. You need to be a market expert to invest in mutual funds
A common misconception regarding mutual funds is that a person needs to have deep knowledge of the stock market to invest in mutual funds. It is also believed that the person should be aware of different aspects of the stock market in order to invest successfully.
However, this all is not entirely true. For a beginner, the sip calculator can do the entire trick. With the help of SIP calculator online, you can easily check out the gains you can make for the amount invested. This is an online tool which will create a roadmap of the amount invested and the gains you can expect at a different annual rate of returns.
You should note that one of the aims of the mutual fund is to help people get the benefits that securities market offers without having an in-depth knowledge of the market scenario. The truth is that the mutual fund market is managed by highly experienced fund managers who have substantial knowledge of the market. As an investor, you only need to have basic knowledge of ways the mutual fund works. The rest is taken care of by the fund manager who ensures that the amount is invested judiciously.
2. Mutual Funds are only for the rich lot
This is another misconception that people have about different mutual funds. Many people believe that they could invest only if they have a large amount to spare. Others have the misconception that they should be substantially rich if they wish to invest in mutual funds.
However, this is not true at all. A mutual fund is considered to be an investor-friendly investment and investors with a different financial background can choose dedicated plans as per their investment capabilities. The SIP investments can be done with a minimal sum of Rs 500/- per month and can be done for a fixed time frame.
3. Mutual Funds are related to Equity Market
Most people think that mutual funds invest only in the stock market which is very much prone to market fluctuation. Hence, people shy away from investing in mutual funds. They fear that the amount invested will be lost in case there is some fluctuation in the market or if the market underperforms due to some reasons.
This is a mere misconception as mutual funds have different categories which invest in different brackets. The three major categories into which the mutual fund market is divided is inclusive of Equity schemes which predominately invest the amount in the stock market and other related segments. The second category is the debt schemes which invest in the debt-related segments and the last is the hybrid scheme which as the name suggests invests in equity and debt segments equally. The investor with the help of financial planner that most mutual fund operators have can choose any one of these as per their choice.
4. Risk is associated with Mutual Fund Investments
Risk is definitely a factor worth considering when you plan to invest in mutual funds. People are blinded with the misconception that mutual funds hold a fairly large amount of risk and their money would be at risk if the fund underperforms.
Mutual funds as discussed earlier fall into different categories and the risk associated with each of this category is also different. The investor can check out the risk associated with these categories at the time of investment and can plan their investment cycle accordingly.
5. Mutual Funds that have lower NAV are better for investment
Many people have the belief that if a mutual fund is bought at a lower price, better growth is ensured in the long run. Many investors are of the opinion that if they purchase a mutual fund scheme at NAV of Rs 20/- and when it increases to Rs 40/- the money will also be doubled. They also have the misconception that more consequences at a later stage.
It is thus important that when you invest in mutual funds, different factors like style of investment, associated risk, portfolio etc. should be considered. The analysis of the growth of the scheme should be done based on the returns in percentage without ignoring the size of the NAV.
The misconceptions listed above are the common ones when it comes to investing in mutual funds and you should get over these when you decide to invest in such funds. Proper research of the market and consultation from investment planners should be done as you pick up the appropriate mutual fund. After all, your hard-earned money is at stake and you would definitely not want it to go down the drain.