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Myths vs FactsBusting Common Myths About Mutual Fund Investments

MYTH #1 -You need a large amount of money to invest in mutual funds

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Fact :You don't require a large amount of money to start investing in mutual funds. You can start as low as Rs. 5,000 for a single lump-sum investment and there's no upper limit for this type of investment. For subsequent investments, you can invest as low as Rs. 1,000. If you opt for Systematic Investment Plans (SIPs), you can begin with a minimum of Rs. 500 per month.

MYTH #2 - One must be an expert to invest in mutual funds

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Fact :You don't have to be an expert to invest in mutual funds. Asset Management companies have professional fund managers who manage your investments to generate higher returns. They help you invest in stocks to generate higher returns and seamlessly manage risk.

MYTH #3 - Mutual fund is a long-term investment

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The Facts : Mutual funds are goal-based investments. You can choose short-term, medium-term and long-term investments based on your investment objective and requirement.

MYTH #4 - Returns are guaranteed via mutual fund investments

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Fact :Mutual funds have the potential to yield significant returns, but it's essential to understand that they are market-related investments and fluctuate based on the market conditions of the underlying stocks. The returns could be as high as 40% to 50% in one year; however, the following year they could be as low as 7% or even negative. Numerous studies conducted in the past have consistently demonstrated that equities tend to exhibit a gradual upward trend, with the compounded annualized growth rate, essentially the average return, being the commonly cited metric.

MYTH #5 - You need a Demat account to invest in mutual funds

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Fact :You don’t have to hold a Demat account to invest in mutual funds. Such an account is solely necessary for investors to electronically buy Exchange Traded Funds (ETFs). In the case of all other investment options, such as close-ended schemes such as Fixed Maturity Plans (FMPs), individuals have the freedom to retain their units either electronically via a Demat account or through the conventional physical account statement method.

MYTH #6 - Investing in mutual funds is like investing in stock market

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Fact :No, investing in mutual funds is not like investing in stock market. Whereas mutual funds are allocated across various financial markets, including stocks (equities), bonds (both corporate and government), and short-term money market instruments like Treasury Bills, Commercial Papers, Certificate of Deposits, and Collateral Borrowing and Lending Obligations (CBLO). Some of these instruments have high minimum investment requirements, making them inaccessible to individual retail investors. Therefore, mutual fund schemes offer a way for retail investors to participate in these investment opportunities.

MYTH #7 - Mutual fund investments require Know Your Customer (KYC) submissions for every investment

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Fact :The submission of your KYC is mandatory and a one-time exercise for investing in mutual funds. It must be submitted as a verification. You can also submit e-KYC, making the process quicker and easy.

MYTH #8 - Investing in mutual funds with low Net Asset Value (NAV) is better

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Fact :No, higher returns are not guaranteed by investing in mutual funds with lower NAVs. The NAV represents the price at which you can buy or sell a unit of a specific scheme. Therefore, the NAV, whether it's Rs. 10 or Rs. 100, is not indicative of the potential gains from your investment. What truly matters are factors such as the rate of return, the scheme's performance history, and its level of volatility.

MYTH #9 - SIP is only for small investors

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Fact :Although SIPs allow you to invest small amounts, you can also invest more if you want. You can begin investing in SIPs with any amount, but you can't invest less than the minimum amount set by the scheme, which is usually Rs. 500.

MYTH #10 - A scheme with a higher NAV has reached its highest value

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Fact :It’s a popular myth that a scheme with a higher NAV has reached its highest value. The NAV of a scheme is simply a representation of the current market value of the stocks held by the fund at any given time. Mutual funds invest in stocks, and these stocks can be bought or sold as deemed fit by the fund manager based on the fund's investment strategy (whether it involves buying, holding, or selling). If the fund manager believes that a specific stock has reached its peak, they have the option to sell it. Having a high NAV does not necessarily imply that the fund is costly. A high NAV signifies that the scheme has demonstrated strong performance over the years.

MYTH #11 - You need an extensive documentation to invest in mutual funds

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Fact : No. Investing in mutual funds does not require exhaustive documentation. You only need to submit your KYC (Know Your Customer), which is a one-time exercise. You submit the KYC through an intermediary registered with SEBI (Securities and Exchange Board of India), such as a broker, Depository Participant (DP), or Mutual Fund agency, among others. There's no need to duplicate this procedure when dealing with different intermediaries. Investing in mutual funds requires you to furnish identity proof, address proof, and a recent photograph. Completing the KYC process streamlines your ability to make investments in all Mutual Funds smoothly.

MYTH #12 - You are too young to start investing

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Fact :Not really. You are never to too young to start investing in mutual funds. The reason for this is that you will have time on your side. The earlier you begin investing, the greater your potential wealth. Additionally, time will be on your side, so if the market declines, staying invested will provide you with adequate time to withdraw your money.

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