Top 5 mutual fund myths busted! Remove hurdles to making money, here is how

Mutual fund Myths: While making investments in mutual funds, it has been found that people harbour various myths like top-ranked mutual fund means high returns, low NAV means highest growth rate, etc. These myths stop investors from making money. We bust them here and show you how to make more money. All kinds of useless information related to mutual funds investment has created various myths and that is exactly what an investor needs to avoid. 

Speaking on the matter Neelabh Sanyal, COO at Kuwera said, "People investing in mutual funds harbour various myths that affect their returns in long-term and by the time they realise what mistake they have committed a good period of investment in their life is found already gone. So, one must avoid these myths. Some of these myths include the one about needing a Demat Account for investing in mutual funds and SIPs are for small investors only."

Asked about the top 5 mutual fund myths that he would advise investors to avoid Neelabh listed out the following:

1] Top-ranked fund means guaranteed return: Top rated mutual funds don't mean guaranteed high returns. Mutual funds are subject to market risk and an investor's return is dependent on the performance of the portfolio. Mutual funds ratings are done on a monthly basis. So, top-ranked mutual funds don't guarantee assured higher returns.

2] Lesser NAV better returns: NAV means net asset value in mutual funds investment. NAV of a mutual fund is the net value of its market holdings. So, comparing two separate mutual fund plans from their NAV is wrong. A mutual fund investor should look at the NAV deviation in a particular period. One should look at benchmark, alpha, beta value of a mutual fund as well.

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3] SIP is for small investors: Neelabh said that a good number of mutual fund investors believe that a Systematic Investment Plan (SIP) is for small investors, which is completely wrong. SIP is for all types of investors because it allows you to start investing from Rs 500 to any limit. SIP is a monthly mode of mutual fund investment, which in the long-term, gives compounding benefits to a mutual fund investor. Higher, the SIP value would be, higher the compounding benefit goes.

4] ELSS SIP withdrawal: If one has done investment in ELSS Mutual Fund choosing SIP mode, then the investment is a lock-in for three years and after three years, one can't withdraw the entire fund. It will mature month after month starting from the first-month post three years lock-in as it has been invested in a monthly mode of ELSS mutual funds.

5] Stop SIP during a market crash: When the market is crashing, one should not stop one's SIP as it is customised investment plan for the long-term and it has an investment discipline that gets broken when an investor stops one's SIP. A SIP investor is advised to continue investing without bothering about market trends.