Mutual fund has become a mainstream investment product for many investors over the past few years which is evident from the fact that assets managed by the Indian mutual fund industry have increased from Rs 23.53 lakh crore in April 2020 to Rs 32.43 lakh crore in April 2021, an increase of over 37 per cent in the one-year period. While these numbers are large, it’s just the tip of the iceberg as in absolute numbers the total investor count represents a meagre 2 per cent of India’s population.
Mutual fund investing is now hassle free as the firms have built robust back end systems and have invested in technology to reach the last mile. However, first time investors may have some misconceptions around mutual fund investing.
Here are five myths about Mutual Fund investing
1. Investors need to have a Demat account for investing in mutual funds - Demat accounts are required when an investor chooses to invest in stocks or the securities market. Investors have the option to invest in Mutual Funds without a demat account. Investors can simply visit any AMC website that you wish to invest in, complete KYC, fill in required details and start their investment journey.
2. Mutual Fund investment is of high risk as they keep on saying Mutual Fund Investments are subject to market risk – Mutual funds are market linked products and hence investors are cautioned before they invest about market related risks. Mutual funds are managed professionally and every fund manager endeavours to manage these risks while capturing opportunities across the relevant markets.
3. Mutual Funds are only for high income people - Another major myth that goes around is one needs a huge amount of money to invest in mutual funds. Mutual funds are one of the instruments that lets an investor start their investment with a minimal amount of Rs.500 per month. SIPs or Systematic Investment Plans have been introduced for investors to invest regularly in a disciplined manner.
4. Mutual Funds are only for specific tenure – Mutual Funds are evergreen investment solutions. Investors can choose a scheme as per their risk profile and tenure. It can be for the short term, mid-term, long term, etc. Investment for a longer tenure increases the chances to create more wealth followed by compounding investment benefits.
5. Mutual Funds charge high fees to manage money – As mutual funds are regulated by the Securities and Exchange Board of India (SEBI) they follow all the rules laid down by the authorities. As per SEBI regulations, expense ratios are capped for each type of mutual funds. Although these are maximum limits that can be charged, AMCs often charge expenses below the regulatory limit.
(Written by Ashwin Patni, Head Products and Alternatives at Axis AMC. Views expressed above are his own.)
