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Beware of these 5 myths before you invest in mutual funds

Beware of these 5 myths before you invest in mutual funds
Investment | August 04, 2020

Investing decisions can be complicated sometimes. After all, there are so many options available in the market, from stocks and bonds to real estate and money market instruments. It becomes difficult to choose the right investment instrument especially when you have many choices all around. For layman investors, one of the best options could be a mutual fund that allows investment into equity, debt, hybrid funds, etc., depending on their needs. Investing in mutual funds is much safer than the direct investment in stocks; they offer high liquidity and managed by highly skilled fund managers. However, there are some myths that sometimes confuses investors due to which they fail to take full advantage of mutual fund investments. Let`s find out 5 common mutual fund myths and understand the fact behind it.

 

5 myths of investing in mutual funds

-    Myth: It requires a huge amount for an effective investment

Fact: Mutual Funds do not require a large investment. You can start an investment with as low as Rs. 500. You can even invest in installments through Systematic Investment Plan (SIP). 

 

-    Myth: Buying only top-rated mutual funds guarantee better returns

Fact- Has Virat Kohli performed in every match he has ever played? No! Just like that having top rated mutual funds in your portfolio does not guarantee a better return. Sometimes they underperform too. A fund becomes top-rated when it performs better than other funds. So, it`s crucial to assess a fund`s performance potential before investing rather than rely solely on its rating.

 

-     Myth: One needs to invest in too many mutual fund products to diversify.

Fact- Investing in too many mutual fund products can result in over-diversification, and you may end up killing your portfolio`s return. You should ensure an adequate level of diversification, i.e., neither more nor less. So, you don`t need to invest in every other mutual fund product; just select the few good ones that can help you achieve your financial goals.

 

-    Myth: Mutual funds are for long term investment only

Fact- Mutual Funds are not meant only for long term investment. You can invest in an appropriate mutual fund scheme for the short term as well. For example, short-term debt funds, liquid fund, etc., are some of the options with high liquidity, carries low risk, and offers a decent return.

-    Myth: Mutual funds are unsuitable for beginners.

Fact- Mutual Funds are one of the easiest ways to invest. They are much safer compared to stocks and allows greater flexibility than direct investments into debt instruments. Highly skilled fund managers manage mutual fund`s corpus; therefore, they can ensure a better return at lower risk on your investment.

 

A mutual fund offers many investment choices, but you can get their full benefit when you understand them before putting your money into it. Myths can prevent you from earning a good return on your mutual fund investment. If you have any confusion or doubt, don`t hesitate to get advice from a registered investment advisor.

 

  

 

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