Five Common Myths about Mutual Funds

Mutual funds are one of the greatest and highly popular instruments of investments. But there are a lot of myths about it which discourages a lot of people new to the investment industry in investing them. Let’s pop up these myths to understand the mutual funds a little better.

1. Demat account a must: Probably one of the greatest myths about mutual funds that you need a demat account to invest in mutual funds. However, this is not true. No, having a demat account is not essential. Even without it, one can invest in mutual funds through distributors or buy them directly from online distributors or fund houses that have their own online platforms where the transactions and redemption can take place.

2. Restricted to domestic markets: Another one of the highly misunderstood fact is about the market that one can only invest in a domestic market. However, this is far from truth. One can even invest in a mutual fund in an international market.

3. Large sum investment: When it comes to investing in mutual funds, the investors often feel that they have to invest in a huge amount of money to get any return. But, this is not the case. One can even invest as little as Rs.500/month through SIPs. And what more this investment can be scaled up with the increase in your income for better returns.

4. Guaranteed Return: Being subjected to the volatile nature of market, mutual funds come with the risk of losses, so returns cannot be guaranteed as the returns are generated by its underlying assets ranging from high-risk equity to no-risk government securities.

5. High rating Schemes earn better: Ratings just give an idea about the funds past performances but they cannot guarantee the same for future returns. The ratings keep changing according to the performances. So, even a five star can underperform in future. Hence, ratings shouldn’t be considered the only guidelines but should be considered along with a lot of the other guidelines before investing in a fund.