Common myths about Mutual funds

Tarun Pawar -March 11, 2023

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Here are some common myths about mutual funds:

Mutual funds are risky: While mutual funds do carry some level of risk, they are generally less risky than investing in individual stocks. Mutual funds offer diversification across a wide range of assets, which helps to minimize risk.

Mutual funds are expensive: While there are some mutual funds with high fees, many mutual funds are available at a low cost. Investors can find no-load mutual funds, which do not charge a commission, and index funds, which have low expense ratios.

More Mutual funds means better returns: Putting money in lots of mutual funds does not necessarily guarantee diversification or better returns. Investors should focus on diversifying their investments across different asset classes, such as stocks, bonds, and cash, rather than simply investing in multiple mutual funds. Investing in multiple mutual funds may result in over-diversification, which can limit potential returns. Additionally, investing in too many mutual funds can result in duplication of holdings and higher fees. It is important for investors to carefully consider the holdings and investment strategies of each mutual fund to ensure they align with their investment goals and risk tolerance

Mutual funds are only for experienced investors: Mutual funds are designed for investors of all levels of experience. There are mutual funds available that cater to different levels of risk tolerance, making them accessible to investors at all levels.

Buy Mutual funds with good Past Performance for best returns: This is a common myth about mutual funds that is not necessarily true. While past performance can be an indicator of future results, it is important for investors to consider other factors when selecting a mutual fund. Mutual funds with a good track record of past performance may have experienced a period of favorable market conditions, and there is no guarantee that these conditions will continue. Additionally, mutual funds with strong past performance may have a higher expense ratio or be more volatile than other funds, which can affect future returns.

Mutual funds are only for long-term investors: While mutual funds are a popular choice for long-term investors, there are mutual funds that can be used for short-term investing as well. Money market mutual funds are designed for short-term investments and can offer a higher yield than a traditional savings account.

Mutual funds always outperform the market: While mutual funds can provide a strong return on investment, they do not always outperform the market. Some mutual funds may underperform the market, and investors should be aware of this risk when investing in mutual funds.

New Fund Offers (NFOs) are made for better returns: This is a common myth about mutual funds that is not necessarily true. New Fund Offers (NFOs) do not necessarily provide better returns than existing mutual funds. NFOs are a type of mutual fund that are launched to raise new funds from investors. While NFOs may seem attractive due to their initial low cost, there is no guarantee that they will perform better than existing mutual funds. Investors should carefully evaluate the investment strategy, track record, and expenses of an NFO before investing. It is also important to consider the track record and reputation of the fund house launching the NFO.

MF with low NAV is better than high NAV MF: The Net Asset Value (NAV) of a mutual fund does not necessarily indicate its performance or quality of investments. Investors should consider a variety of factors, including historical performance, expense ratio, management team, and investment strategy, when selecting a mutual fund. The NAV alone should not be the sole criteria for selecting a mutual fund.