Myth 1: “Lower NAV Means Cheaper Fund”
The Myth: A fund with ₹15 NAV is cheaper than one with ₹150 NAV
The Reality: NAV is just the price per unit, like the price per apple vs per dozen apples.
Simple Example:
- Fund A: NAV ₹10, invests in companies worth ₹100 crores
- Fund B: NAV ₹100, invests in companies worth ₹100 crores Both funds are equally “expensive” relative to their holdings.
What Actually Matters:
- Fund performance history
- Expense ratio (fees charged)
- Fund manager’s track record
- Investment strategy and holdings
Myth 2: “New Fund Offers (NFOs) Are Always Good Deals”
The Myth: NFO price of ₹10 is attractive compared to existing funds
The Truth: NFO price of ₹10 is arbitrary, like a new company starting its shares at ₹10.
Why NFOs Can Be Risky:
- No track record to judge performance
- Fund manager’s strategy is untested
- You’re paying for experiment, not proven results
- Existing funds have performance history
When NFOs Make Sense:
- New investment themes (like ESG, international funds)
- Experienced fund manager launching new strategy
- Unique investment approach not available elsewhere
Myth 3: “Past Performance Guarantees Future Returns”
The Myth: “This fund gave 25% returns last year, it will do the same”
The Reality: Markets change, fund managers change, economic conditions change.
Why Past Performance Misleads:
- Market cycles vary (bull and bear markets)
- Fund manager might leave
- Fund strategy might change
- Market conditions that helped before might not repeat
What to Do Instead:
- Look at 3-5 year performance consistency
- Check performance across different market conditions
- Focus on risk-adjusted returns
- Compare with similar funds (peer group)
Myth 4: “Guaranteed Returns” in Mutual Funds
The Myth: “This equity fund guarantees 15% returns”
The Truth: NO mutual fund can guarantee returns. Even debt funds have risk.
Types of Risks Even in “Safe” Funds:
- Interest rate risk in debt funds
- Credit risk (company defaults)
- Market risk in all equity funds
- Inflation risk in all investments
What Guaranteed Actually Means: Only bank FDs and government bonds offer guaranteed returns (but with lower growth potential).
Myth 5: “More Expensive Funds Perform Better”
The Myth: Higher expense ratio means better fund management
The Reality: Higher costs directly reduce your returns, regardless of performance.
Expense Ratio Impact Example: ₹1 lakh invested for 10 years at 12% returns:
- 1% expense ratio: Final value ₹2.84 lakhs
- 2.5% expense ratio: Final value ₹2.46 lakhs Difference: ₹38,000!
Smart Approach:
- Compare expense ratios of similar funds
- Choose direct plans over regular plans
- Look for consistent performers with reasonable fees
Myth 6: “SIPs Always Make Money”
The Myth: “SIP is risk-free and always profitable”
The Reality: SIPs reduce risk but don’t eliminate it. You can still lose money.
When SIPs Might Not Work:
- Very short investment periods (less than 3 years)
- Consistently falling markets for extended periods
- Wrong fund choice despite SIP discipline
SIP Benefits (Real Ones):
- Reduces timing risk
- Builds investment discipline
- Takes advantage of market volatility
- Makes investing affordable
Myth 7: “Dividend Plans Give Extra Money”
The Myth: Dividend option gives you extra money on top of growth
The Truth: Dividend comes from your own investment. NAV falls by dividend amount.
Simple Example:
- Growth Plan: NAV ₹100, you have 100 units = ₹10,000 value
- Dividend Plan: NAV ₹95, you have 100 units + ₹5 dividend per unit = ₹9,500 + ₹500 = ₹10,000
Same money, but dividend creates tax liability!
When to Choose Dividend:
- You need regular income
- You’re in lower tax bracket
- Fund has consistent dividend track record
Myth 8: “Market Timing Beats SIP”
The Myth: “If I time the market right, I’ll make more money than SIP”
The Reality: Even experts fail at market timing consistently.
Why Market Timing Fails:
- You need to be right twice (when to sell AND when to buy)
- Emotions interfere with rational decisions
- Missing even few best market days costs heavily
- Transaction costs eat into profits
Proof: Studies show that missing just 10 best market days in 20 years reduces returns by 50%!
Myth 9: “Mutual Funds Are Only for Rich People”
The Myth: You need lakhs of rupees to start mutual fund investing
The Truth: You can start with just ₹500 per month through SIP.
How Small Amounts Grow: ₹500 monthly SIP for 20 years at 12% return = ₹4.95 lakhs (You invested only ₹1.2 lakhs)
How to Avoid Falling for Myths
Do Your Research:
- Read from reliable financial websites
- Check SEBI investor education materials
- Consult certified financial planners
- Join investor education programs
Question Everything:
- Ask for proof of claims
- Understand what you’re investing in
- Don’t follow tips blindly
- Start small and learn gradually
Conclusion
Don’t let these common myths cost you money and opportunities. Mutual fund investing is simpler than it seems, but requires basic knowledge. Focus on facts, not fiction, and your investments will thank you!
