Mutual funds are investment funds that pool the money from many investors to purchase securities. These investors are mostly individuals investing in small amounts. Mutual funds have their advantages like diversification, liquidity and professional management. However, they also have disadvantages like mutual fund fees and expenses. We can trace back the first modern investment fund in the Dutch Republic. It was made to control the financial crisis by Abraham. The United States has $ 21 trillion worth of mutual funds as per the surveys of 2018.
Mutual funds are essential tools of investment as they help people with less income to invest and get long term benefits. They are very beneficial as using these ordinary people can invest small amounts of regular basis and get good returns. Mutual funds give excellent results if the investments are made regularly with consistency. In the long term, mutual funds offer good returns; people who usually invest along with consistency get good returns in a long time. People often ignore the long term benefits, and because of the short term market fluctuations withdraw their investments. This is a huge mistake as these funds perform optimally in the long run; they are affected by the short term market fluctuations. If proper consistency is maintained, then these funds give very high returns.
Six common myths
Suitable for small investors
People often think that mutual fund investments are suitable for small investors. This is because the average investment amount is 500 or 1000 rupees. The minimum SIP of every fund is different. This myth is very common among people as they are not aware that many schemes have a maximum investment amount of 1 lakh rupees through SIP. The minimum investment option is created such that people can invest the money as per their convenience. Mutual funds are a very good investment tool, even for big investors. People often misunderstand the systematic investing plan (SIP) amounts and label many funds as appropriate for small investors, in reality, big investors prefer to keep a big part of their investments in mutual funds to get safe and steady growth with a diversified investment portfolio.
Investment experts state that every investor should divert a good percentage of money into mutual funds. This busts this myth.
2. SIP is not recommended during the bullish market
Many people are advised not to invest through the systematic investment plan (SIP) at the time of the bullish market. People prefer to invest lump-sum amounts during the bullish market so that they can get better returns. This allows investors to get better returns.
People often misunderstand that bullish runs in the market are just a small period of investment tenure. To get good returns, the investor has to invest the amount for a long tenure. Lump-sum investments or systematic investment plans will give good results only when the investor invests for a long tenure. The fact that investments grow only in the long term, and they give less return for small tenures no matter what the market condition is, busts this myth.
3. SIP tenure and amount cannot be changed once started
This is a very common myth that people are not aware of properly. People often think that they cannot change their investment amount and tenure of systematic investment plans after the initial planning. People often invest either very less, or it becomes a financial burden on them as they think they cannot change the tenure and amount as per their requirements.
The simple fact that mutual fund investing is the most flexible investment option, busts this particular myth. Investors have an option to change the investment amounts and tenures of their systematic investment plans as per their requirements anytime. People often misunderstand the fact that mutual funds are one of the most flexible investment options, and they ignore the fact that they can invest in systematic investment plans as per their requirements.
4. SIP performs better in a mutual fund than a lump-sum investment
One of the most common myths related to mutual funds is that systematic investment plans perform better than lump-sum investments. Investors often think that regular investments are the key to get better results, so they prefer investing in systematic investment plans more than lump-sum investments.
Financial experts bust this myth as according to their studies, and research investments are a huge subject to the time. Investors can get good returns only when they maintain their investments for a long tenure. Investing in both lump-sum and systematic investment plans will give approximately the same results, but if the investors want to grow their money, they should maintain their investments long durations.
5. SIP guarantees return
People often think that mutual funds are risk-free, and investing in mutual funds will give returns. Investors think that investing in mutual funds is safe, but mutual funds work according to the market forces. These market forces tend to cause fluctuations in the prices and returns. Mutual funds are subject to very risk as they are dependent on the performance of various sectors and companies. This is because the system diverts the funds into various companies of different sectors, so poor performance of even a single company might impact the returns.
The market studies and researches bust this myth by showing that mutual funds can face huge losses and there’s no guarantee on the returns of these funds. Experts state in many interviews that mutual funds do not guarantee returns. This may result in losses in cases of poor performance.
6. SIP cannot be discontinued
This is a very big myth that is famous among many investors. Investors believe that systematic investment plans require regular investments and cannot be discontinued. Investors think that discontinuing systematic investment plans can cause them to lose their investments. This creates a huge burden on many investors as they cannot stop investing in systematic investment plans due to the fear of losing their investment.
The guidelines of many companies and expert statements have busted this common myth. Experts advise going through the terms and conditions of the schemes. Mutual funds are one of the most flexible investment options, and the investments in systematic investment plans can be discontinued as per the wish of the investor.
People often misunderstand the facts of mutual funds as they are not properly aware of the nitty-gritty. Thus, they end up believing in such myths. Mutual funds are a very wide and complicated subject, and before investing in them, proper research is very important. Investors should verify each statement before they start investing so that it doesn’t turn into a financially burdened later on. Investors need to understand the various facts about mutual funds so that they do not face problems because of myths ad can make appropriate investments. Mutual funds are a very important tool of investment, and investors should use it only after proper research and study.
Investors must be aware of such facts and myths so that their investments can grow and give them appropriate results. Investors are often carried away by these myths. But, they should do proper research so that they are aware of the essential facts. So we advise the investors to do proper research before they start investing.