5 Myths & facts of Mutual funds

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

Here are some myths & facts about Mutual Funds which are useful, when investing in this asset class.

1. Myth – Mutual Funds are meant for long term investors.

Fact – Mutual Funds can be a short term investment but, It is meant to be a long term asset, to receive  high returns. Mutual Fund when invested for period of 5 years may give a return of an average of 12 – 15%. ₹1 lakh invested for 5 years will be 1.75 lakhs in 5 years. At 15%, money will double in every 5 years.

2. Myth – Funds will get locked and cannot be used.

Fact – There is no lock-in period for Mutual Fund Investments, apart from ELSS schemes which are done to save taxes. Even these schemes are one of the lowest lock-in available in the tax saving products universe. Other products like, PPF, Tax saving FD’s, ULIP’s etc are locked for more than 5 to 15 years.

All other mutual fund investments are available for redemption at time after the investment. Only that withdrawals made before 1 year from the date of investment will have 1% exit load and above 1 year, it is free to withdraw.

3. Myth – Mutual Funds always give positive returns

Fact – Investments into mutual funds are market related and will go through the up’s and downs of the market. If invested for short durations, there is possibility of having negative returns on the other hand, if the investment horizon is more than 5 years chances of negative returns becomes zero.

4. Myth – Mutual Funds is very risky

Fact – It becomes risk only when we do something without the knowledge of what we are doing and don’t know the outcome. In mutual funds, experienced fund managers manage the investments and they are well equipped with research teams to identify good investment opportunities.

5. Myth – Big Funds will give big returns and small risk

Fact – Wealth creation is about time and not size. Just investing into a big fund will not give big returns, while staying with the fund for a longer period will for sure give big returns.