Mutual funds are a fantastic vehicle for long-term investing, such as college savings, home ownership, and retirement provision. However, investors are confused and discouraged by the prevalence of fallacies around mutual fund investment.
However, in order to make educated financial decisions, we must dispel these beliefs and have an understanding of the realities of investing in mutual funds.
Big Money Is Required
The common misconception about mutual funds is that you need a sizable initial commitment to see any real rewards. But the reality is just the contrary. Investing in mutual funds over the long run, thanks to the compounding effect, can yield sizable returns.
Slow and Time-consuming Paperwork Process
SEBI has made it mandatory for all investors to submit their KYC paperwork once. For the first time, an intermediary registered with SEBI can help you through the procedure. If you decide to go via an intermediary again in the future, you won't need to go through the same process.
It's not easy to cash out of a mutual fund
Investors are discouraged from participating in mutual funds due to the misconception of the lock-in period. The reality, however, is that a SIP can be started or stopped whenever cash flow permits. Other mutual funds are flexible, with the exception of equity-linked savings schemes (ELSSs), which have a lock-in term of three years but give tax benefits of up to Rs 1.5 lakh u/s 80C of the Income Tax Act.
You Must Make A Long-Term Investment
The power of compounding is quite real, and it may be reaped through long-term investment in mutual funds. However, it's not required. Mutual funds are an option for anyone seeking a speedy return on their money. Whether you're looking for a program to invest for the short, medium, or long term, mutual funds have you covered. Investors with a shorter time horizon might choose short-term debt funds. Investments in equity funds should be considered for the long term.
Mutual funds are a simple investment option for those with less experience in the stock market. However, investors are sometimes hampered in their quest to choose the optimal investment vehicle due to misunderstandings. Once you learn the truth about mutual funds, you'll be able to make a well-informed decision about your investing strategy.
You should choose a mutual fund investing plan based on whether you're looking to make a short-term or long-term investment. An equity mutual fund is ideal for long-term investments like retirement or college savings. But if you're thinking on the near term, a debt fund might help you safeguard your earnings.
