Myth Busters on Investing in Mutual Funds in India
Mutual funds have become a cornerstone of many investment portfolios, offering diversification and professional management. However, like any popular investment vehicle, they're often surrounded by myths and misunderstandings. In this "Myth Busters" series, we'll tackle these common misconceptions head-on, providing clarity and helping you make informed investment decisions.
Myth 1: You Need a Substantial Amount of Money to Invest in Mutual Funds
[1]Fact: One of the common misconceptions is that mutual fund investments are meant only for the rich/wealthy. In reality, mutual funds are designed to be inclusive and affordable. You can start investing with as little as ₹100 through a Systematic Investment Plan (SIP) or lumpsum. Also, there are AMCs that may allow you to invest at ₹10 also. This approach makes mutual funds accessible to entry-level professionals and anyone looking to invest in mutual funds.
Myth 2: You Must be a Skilled Expert to Invest in Mutual Funds
[1]Fact: Many people believe that mutual fund investments require advanced financial knowledge and constant tracking. However, this is far from the truth. Mutual funds are managed by professional fund managers who analyse the markets and make investment decisions on behalf of investors.
As an investor, you do not need to be an expert. Your role is to assess your financial goals, time horizon and risk appetite and select a fund accordingly based on your own due diligence. The fund house takes care of portfolio construction and day-to-day management. This makes mutual fund investments ideal even for beginners with little to no prior experience.
Myth 3: Mutual Fund Investments Provide Guaranteed Returns
[2]Fact: A major misunderstanding is that mutual fund investments offer fixed or guaranteed returns. Unlike traditional saving instruments such as fixed deposits, mutual funds invest in an underlying asset - which can be equity, debt or commodities. They do not promise any fixed income. Investors should be aware that mutual fund investments come with risks and should choose funds based on their risk tolerance and investment horizon.
Myth 4: Mutual Fund Investments Require a Demat Account
[1] Fact: It is a widespread belief that mutual fund investments require a demat account. However, this is not necessary. Investors can buy and sell mutual fund units directly through an Asset Management Company (AMC) or use other platforms that facilitate transactions without needing a demat account.
This simplifies the process significantly, especially for new investors who may not have exposure to demat accounts. Many apps and websites allow you to complete your investments in just a few clicks. Therefore, a demat account is optional, not mandatory, when it comes to investing in mutual funds.
Myth 5: Mutual Funds Invest Solely in Equity Markets
[2] Fact: A common myth is that mutual fund investments are entirely tied to the ups and downs of the stock market. Mutual funds offer a wide variety of investment options. Debt funds, hybrid funds and commodity-linked funds such as gold ETFs are all part of the mutual fund universe.
Debt funds invest in bonds and other fixed-income instruments, offering lower risk than equity. Hybrid funds combine equity and debt for balanced returns. This diverse range allows investors to align their portfolios with their risk tolerance and financial goals. Hence, mutual funds are not just about equities - they offer far more.
Myth 6: SIP Amount, Date and Other Aspects Can’t be Changed Once Started
[2] Fact: SIPs offer significant flexibility. You can change the investment amount and tenure at any time based on your financial situation. If your income rises or falls, you can adjust your SIP amount accordingly.
You may increase your SIP amount when you receive a salary raise. You can also request the fund house to pause your SIP temporarily without cancelling it entirely. This flexibility makes SIPs suitable for investors whose financial circumstances might change over time.
Myth 7: Weekly SIPs are Better than Monthly SIPs
[2] Fact: Consistent investing helps average out investment costs through market fluctuations. However, the concept of “smart SIPs” that promote more frequent investments (like weekly instead of monthly) does not necessarily improve returns significantly.
The real benefit of SIP investing comes from disciplined, long-term contributions rather than different frequencies. You can refer to this blog for more detailed analysis.
Myth 8: A Scheme with a Lower NAV is Better / NFOs are Preferable
[1] Fact: A mutual fund’s NAV represents the market value of all its underlying investments, not its potential for growth. Whether you invest in a scheme with a NAV of Rs.10 or in a scheme with Rs.100, if the underlying assets appreciated by the same percentage, your returns will be identical.
For example, if you invest Rs. 10,000 in two different schemes with NAVs of Rs. 20 and Rs. 100, you will get 500 units and 100 units respectively. If both schemes’ underlying investments grow by 10%, your investment value in both cases will increase to Rs. 11,000.
Myth 9: A Scheme with a Higher NAV Has Reached Its Peak
[1] Fact: The NAV of a scheme merely reflects the market value of the underlying assets held by the fund on any given day. Mutual funds provide exposure to various asset classes based on the scheme’s investment strategy.
A high NAV does not indicate that a fund is expensive or has peaked; rather, it often signifies the value of the unit of the scheme. Judging a fund based solely on its NAV can be misleading.
Conclusion
Understanding the truth behind these common mutual fund myths vs facts may help investors make more informed decisions. Mutual funds remain one of the most accessible and versatile investment avenues for investors of all types. They offer professional management, diversification and flexibility that suit various investment goals and time horizons. By debunking these top mutual fund misconceptions, we hope to have clarified the mutual fund truths that can help both new and experienced investors navigate their investment journey more confidently.
Sources:
[1] AMFI
[2] Value Research
Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Published on May 27, 2025