MYTHS ABOUT MUTUAL FUNDS
Myth 1: Funds are only for the long term.
Yes, long-term investments have a slight advantage, but that does not mean that mutual funds are only for such investors. In fact, there are various short-term schemes where you can invest for one day to a few weeks.
Myth 2: Mutual fund is an equity product.
People usually associate mutual funds with equity funds, but this is not entirely true. Mutual funds invest in a variety of instruments ranging from equity to debt. Within debt, they may invest in debt instruments that mature in a day (also known as money market instruments), to those that mature in 1 year to 10 years.
Myth 3: Funds with a lower net asset value are better than those with high NAV.
The fact is that what matters is the percentage return on invested funds. So, instead of concentrating on a low NAV and more number of units, it is worthwhile to consider other factors like the performance track record, fund management and volatility that determine the portfolio return.
Myth 4: One needs a large sum to invest.
This is one of the most long-standing myths that have absolutely no relevance. Most funds allow investments as low as Rs 1,000, with no limits on the maximum amount. In fact, even for equity-linked savings schemes the amount is as low as Rs 500. Also, there is no monthly or annual maintenance charges even if you do not transact any further. Mutual funds also offer systematic investment plan facility in many of their schemes, allowing you to invest small amounts of your choice regularly.
Myth 5: One needs to have a demat account.
This is not true. There are multiple ways in which you can buy mutual funds and some of these are explained here.
(i) Offline (by filling up a form through financial intermediaries like independent financial advisors, banks, financial distribution houses, etc.) (ii) Online: Through the many accessible distributor websites as well as through asset management
companies (mutual fund companies) on their websites If you have a demat account, you can even consolidate the mutual fund holdings along with other holdings in the demat account. You can buy mutual funds through the same intermediary who may be helping you to buy and sell shares on the stock exchange.
This is a very common misconception because of the general association of mutual funds with company shares. Remember that mutual funds invest in shares, so they can get in and get out whenever the fund manager deems appropriate. If the fund manager feels that a stock has peaked, he can choose to sell it. To understand the reality of this myth better, you need to understand that the NAV is nothing but a reflection of the market value of the shares held by the fund on any day. In all probability, the NAV could be high on account of a good performance over the years.