Paper assets or Financial assets have a lot of myths associated with it. Likewise, Mutual fund investments are plagued with a lot of misconceptions. Surprisingly a lot of retail investors spend little time and energy in figuring out is certain perceptions/misconceptions are true or mere heresy. Here we are with the four misconceptions that investors need to be mindful of.
1- Mutual Funds Need Large Investment
One of the major misconceptions about mutual funds is that it requires large investment. But the truth is that you can get started even with the low investment in mutual funds. Though the minimum ticket size is Rs. 5000 however in a SIP (systematic Investment Plan) one can invest as low as Rs.500 every month.
2- All Mutual Funds are Long Term Investments
Mutual funds are short term or long-term investments depending on the underlying assets the mutual funds one invests in, If you are a short term investor (investment horizon of less than 5 years) then investing in debt mutual funds is a great option. Debt MF can be liquid, short term or long term depending on the tenure of your investments. For a very short period (say a few days) one can invest in a liquid debt fund.
long term investors (over 7 years) may invest in equity mutual funds. They can certainly mitigate risks using SIP and STP. Risk of losing capital goes down to almost 0 if the investment tenure is over 7 years.
3- No Mutual Funds have tax benefits U/S 80CC .
ELSS (Equity Linked Savings Scheme) is qualify for tax deduction under Section 80C of Income Tax Act. Investments in ELSS schemes are locked in for a period of 3 years (unlike 15 years for PF) and there is no exit option within those 3 years. Returns accrued in ELSS are all tax free.
4- Mutual Funds = Equities=High Risk
This is the biggest myth amongst retail investors. Mutual funds are not only about investing in the equity market or stocks. Mutual funds are basically categorized according to the underlying asset classes one invests in, equity mutual funds, debt mutual funds, and money market funds. Equity mutual funds can not only invest largely in equities. Whereas a debt fund will not get into equities at all. Investors can easily mitigate risk using SIP, STP, investing in hybrid funds (combination of debt and equity).
Once you get the right facts then it would be easy and simple for you to invest in mutual funds. MutualFundWala can help you plan your finances.