5 common myths about investing in Mutual Fund

One of the biggest hurdles in the journey of investing is getting over the widely believed myths that bear no foundation or truth. But we believe it because everyone does. To start investing, one must, most importantly refrain from giving in to false notions and myths and believe in the correct facts. Here are some of the most common myths about investing in mutual funds:

1. Mutual Funds need large investment
Fact: Mutual funds do not need large amounts to start with, you can start with even as low as Rs. 500 per month, through a tool called Systematic Investment Plan (“SIP”) in a mutual fund wherein you are allowed to invest a regular monthly instalment in the fund, basis which units would be alloted in your folio. In fact, the earlier you start investing, the better it would be for your money as the power of compunding will help grow your money.

2. One needs to invest in several mutual funds to avail the benefit of diversification
Fact: Mutual funds by itself invest across asset classes such as equity, debt and money market instruments, which provide investors with the benefit of diversification of risk. In mutual funds, investors can diversify their portfolio basis their risk appetite and alter it from time to time, whenever and wherever necessary.

3. Buying top rated mutual funds guarantees better returns
Fact: Mutual fund performances are subject to market risks and may vary from time to time. Thus, it is not certain that a fund that may have performed well in the past will do so in the future as well. Investments in mutual funds need to be tracked and reviewed from time to time to ensure it is performing as per the need of the investor.

4. You need a demat account to invest in mutual funds
Fact: You do not need a demat account to invest in mutual funds. By filling up the application form and ensuring you are KYC compliant, you can choose the fund and submit a cheque to make the investment. However, to ease the process of investing and get better guidance, you may engage a financial adviser throughout.

5. Mutual funds are not suitable for beginners
Fact: Any investment, if done without appropriate knowledge can be dangerous. Mutual funds offer high transparency with respect to where and how the funds of the investors are invested. New investors could consider starting a SIP in a mutual fund, through which they could invest small regular amounts every month and gradually increase it overtime. Financial advisers should be consulted for professional advice in investing, reviewing and tracking the performance of the mutual funds.

Disclaimer – This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. This material provides general information and comparisons made (if any) are only for illustration purposes. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may or may not be realized or achieved. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction except India. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.