Common misconceptions about mutualfunds

Want to invest in mutual funds to build wealth, save taxes or have enough money for that vacation abroad you’ve always wanted to go for but not sure?

Here are a few doubts most people have which keeps them from investing and why most of them are not well informed :

  1. My money will be at risk
    Yes, if you are looking for high returns, you obviously have to take some risk. But that’s not mutual funds are all about. If you’re not willing to risk your capital, there are certain types of mutual funds available with virtually no risk and can still give you better returns than fixed deposits or savings accounts.

    These funds are called debt funds. Instead of investing your money in stock markets, these funds use your money to lend money to corporates and yield interest from them. These funds can offer you a yearly return rate of 8-9% and unline fixed deposits, you can take out your money out whenever you want to.

  2. I won’t have my money when I need it
    Truth is, most mutual funds don’t work like fixed deposits or life insurances and don’t have a lock-in period. Which means, your money is still as yours as it is there in a savings account. In fact, there are some funds which are designed specifically for the purpose of putting your short-term savings. You can actually invest your money today and take it out next week and still get better returns than savings bank account. These funds are called liquid funds or ultra short-term funds.

    Yes, if you’re investing in Tax-saving(ELSS) funds or close-ended funds, there is a defined lock-in period and you’ll have to wait for that to end before you can take out your money and go home. Also, if you’re investing in equity funds, don’t forget to check the exit loads. Exit loads can range from 0.5% to 2%. If the fund you’re investing in has an exit load, you will have to pay it if you want to withdraw it before the defined timeframe.

  3. I will invest when the stock market is down
    If you have a big surplus amount which you want to invest, market conditions certainly help. But if you’re looking for investing small and building wealth in the long term, you should not be waiting for markets to go down. The best way to invest in mutual funds is to start a periodic investment or SIP as you might know it. The deal with SIP is that you invest a portion of your savings every month. This averages out the market dynamics and gives you good growth in the long term.

    Now, even if you have a big surplus amount which you want to invest, instead of waiting for the time when the market is down, what you can do it is put your money in a liquid fund and start a systematic transfer plan(STP). STP will shift your money from liquid fund to equity fund in parts. Liquid funds will give you better returns than a savings account and shifting it periodically to equity funds will average out the market conditions for you. Awesome, isn’t it?

Got any other doubts keeping you from investing in mutual funds? Write to us in the comment section or drop an email to advisory@fundexpert.in.

About the author

Sourabh Bajaj

Sourabh is the Product Lead on FundExpert and looks over development and growth aspects of the product.

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