Mutual Fund myths that come in the way of your becoming wealthy

What are mutual funds?

How many times have you been stumped by the unknown?

When we don’t know enough about something, we end up relying on the judgement of others or hearsay and rumours. This, as you well know, is less than optimal. A lot of things many believe about mutual funds are also similarly by-products of not having enough information.

These, often negative but ultimately incorrect, myths about mutual funds have stood in the way of a lot of people becoming financially independent. Let us now look at three such myths about mutual funds, which have kept a lot of people from investing in them.


Myth #1. Mutual Funds are only for rich people

Most of India doesn’t earn a six-figure income monthly, unlike what you would be led to believe if you live in a metro.

Many are thus satisfied with traditional saving and investment options because they end up saving little if anything at all. Considering many of us have to deal with education loans at the start of our careers, saving is definitely not easy.

Because mutual funds are popularly associated with stocks and shares of companies, people incorrectly assume it is an option only for the wealthy who can take greater risks with their money.

Reality: You just need Rs. 500 to begin investing Mutual Funds.

Mutual funds, whether we believe it or not, are actually meant for anybody who wants a good way to invest. You need as little as Rs. 500 if you want to start a monthly investment plan in a mutual fund.

Do these numbers sound like “huge” sums of money for most of us? A visit to a multiplex to watch the latest Marvel blockbuster ends up costing us more than Rs. 500 for the entire evening.


Myth #2. Mutual funds are not meant for those just starting their investment journey

Whenever we think about people who invest in the stock market most of us think of either traders shouting on phones or sage professionals doling out expert advice on the economy.

It’s hard to imagine, say our local grocery store owner investing in an equity mutual fund. Prejudice it maybe, but many of us assume knowledge is a prerequisite for successful investing in anything beyond gold, bank fixed deposits, or even chit funds. In the case of mutual funds, many believe it to be out of reach for someone who doesn’t know the intricacies of the stock market or doesn’t have advanced financial knowhow.

Reality: You don’t need to be an expert in investing to invest in Mutual Funds

All you need to know, to start investing, is your goal amount and your time frame. For the long run, equity mutual funds are the best and for the short run debt mutual funds.

Even if you didn’t invest in the best mutual funds, you would still be better off than by not investing in them at all.


Myth #3. Mutual Funds are only for investing in the stock market

Many people believe, incorrectly, that mutual funds are only about the stock market. Most ads on TV about mutual funds refer to equity and the stock market. Most people you know who invest in mutual funds also seem to be talking about how the “market” is doing.

Investment planners who talk about saving for seemingly big goals like a crore also end up focusing on equity mutual funds.

Reality: Mutual funds also come in another type called debt funds, which have nothing to do with the stock market

Debt funds as a larger class of mutual funds which invest in something called fixed income assets like debentures and bonds. What this means is that they invest in something that generates an interest, like a bank fixed deposit or savings account. Debt funds themselves come in different types and lend themselves to a variety of goals from your perspective.

If you want to save for a goal that is about three years away, a debt fund is ideal. These funds don’t invest in the stock market and thus don’t fluctuate in value as much.

This makes such funds ideal for having an emergency fund or even saving for anything you would normally consider a fixed deposit for.

From myths to facts

Nobody values your money as much as you do. So if we want to grow our money smartly we will need to look beyond our neighbours or even what our financially savvy friends at work say. This means looking at the facts about mutual funds rather than myths. Know the facts, and nobody can stop you from reaching your financial goals, like a boss.


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Read up more on Mutual Funds here

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