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33 mutual funds myths uncovered for the rst time


Are you one of those investors who are still away from mutual funds investments because you do not have enough
understanding about it or have lot so myths about them?

Every day we get constant enquiries from several of our readers who want to invest in mutual funds and often they
have myths, which make us wonder about those myths.

So in this post I have listed down 33various myths related to mutual funds and SIP in general. So if you are totally
new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.


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So lets start

Myth #1 SIP is name of an investment product

A lot of people think that SIP is name of some investment product other than mutual fund. So they say I want to
invest in SIP. However SIP means systematic investment plan, which just means way to regularly invest only into
mutual funds. In this a pre- xed amount is automatically deducted from your account and gets invest in mutual
funds on a pre-de ned date.

For example, if you are doing a SIP of Rs 5,000 in ICICI pru Discovery mutual fund on 10th of every month, then on
10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.

Myth #2 I cant stop SIP in between once I start it

Another myth which stops investors from entering mutual funds is that they think starting SIP for X yrs, is a
commitment they cant break in between and they will face some penalty if they stop their investments.

A lot of people do not want to give any PROMISE of regular payment. However the truth is that once you start the
SIP, you can anytime stop the SIP in between. So dont worry while starting the SIP for next 5, 10 or 30 yrs. The day
you want to stop it, it can be stopped with just one noti cation!

Myth #3 All the money from ELSS can be withdrawn after 3 yrs if one is
doing SIP

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs,
they can withdraw all their money. However that is not true. Each investment in ELSS is locked for 36 months from
the date of investments. Which means that the rst SIP which goes in March 2017, will be free of lock in only in Apr,
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The same is the case with the installment which goes in Apr 2017 (will be free on May, 2020)

Myth #4 Lower NAV is cheaper than higher NAV

Most of the mutual funds investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV
mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has potential to grow faster
than a stock with Rs 10000 stock value.

But in case of mutual funds NAV has no signi cance. Its ZERO !

Because your mutual funds appreciation has everything to do with the appreciation in NAV value in percentage
terms and not absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund
performs great and in next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to
Rs 20 lacs.

However if the NAV was Rs 10,000 per unit, still the effect would be same for you. The NAV would have increased
to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.

So stop thinking that a fund is better (especially NFOs) just because its NAV is lower.

Myth #5 Dividend in mutual funds is better than Growth option

When you choose a mutual fund to invest, you have to choose between Dividend and Growth option. Now a lot of
investors think that dividend option is better because they are getting extra dividend . However its not true.

Dividends are not extra ! , The NAV comes down by that margin after the dividend is paid, on top of it , if the fund is
not an equity fund, a dividend distribution tax is rst paid by AMC, which lowers the return of investor. However in
case of growth option, the money remains in the fund itself.


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For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10

Now in case of dividend option , Rs 10 will be paid to investor and NAV will come down to Rs 90.

However in case of Growth option, nothing is paid to investor , but the NAV is Rs 100.

Myth #6 Mutual funds means Stock Market

One of the most common myths is that mutual funds are highly risky because they invest in stocks. However this is
half true. Only equity mutual funds invest in stocks and are risky (infact volatile is the right word, not risky)


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There are other categories of mutual funds called as debt mutual funds, which do not invest in equities. They invest
in bonds, govt securities and other secured investments. While debt funds have their own risks and even their
returns are not 100% stable, still debt funds are highly stable when it comes to returns and often provide better tax
adjusted returns then most of the bank xed deposits.
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Myth #7 You have to invest big amounts in mutual funds
Many small investors stay away from mutual funds and stick to recurring deposits and other products because they
think that mutual funds are for big investors and one has to invest big money in it. However you can start monthly
investment of even Rs 1,000 per month in most of the funds. If you want to invest on onetime basis, the limit is Rs
5,000 .

So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual
funds SIP.

Myth #8 Mutual funds are always for long term

Mutual funds are marketing as long term investments most of the time. However its not always the case. There are
mutual funds called as liquid mutual funds and even short term debt funds which can be used for short term
investment horizon like 6 months or 2 yrs.

This article from Economic times talks about some of these funds

(Image Source)

Only in case Thankyouforvoting!

of equity mutual funds, its suggested that one should invest from a long term perspective to reap the
maximum bene ts.
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Myth #9 Mutual funds offer guaranteed returns
No, Not always.

Actually never !

Mutual funds never offer a guaranteed return like a xed deposit. This is one reason why many investors who are
totally in love with assurity shy away from investing in mutual funds.

Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere
from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return
ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%

So the returns are not guaranteed, but highly probably within a range depending on its category.

Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return
within a range increases.

Myth #10 I will lose my money if mutual funds company goes bankrupt
This is common thinking, but not true

Mutual funds are highly secured in terms of structure. The way its designed and regulated by SEBI, its almost
impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual funds units does not lie
with AMC (it just takes decision of buying and selling). Units and all the money lies with custodian and highly secure.


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For more on this , you should read this article

Myth #11 Past returns in mutual funds indicate future returns

Not correct.

While past returns can surely tell you that the fund did very well in past and there is some probability due to legacy
that it will perform well. But its not written on stone.

How the fund will perform in future is totally a function of what decisions fund manager takes in future. HDFC Top
200 is a classic example, where the fund who ruled the mutual fund world is now not one of the top 10 funds.

Another example is SBI Maxgain tax saver which was one of the best ELSS fund some years back, but is now
replaced by many others.

Here is a study by Yahoo Finance on this topic with respect to funds in US, which tells that around 92% top
performers do not remain top performers after two years.

Myth #12 More mutual funds means Diversi cation

Diversi cation is an abused word, at least in mutual funds.

Just because you invest in more mutual funds does not always mean that you have achieved diversi cation. The
reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your
money is already well diversi ed across sectors, types of companies etc.

When you add another mutual funds, most of the stocks might be same and also in same proportion, giving you very
little extra diversi cation. When you add 3rd fund and 4th fund, almost no diversi cation happens. Below is the
portfolio of one mutual fund and you can see how much they have diversi ed already.

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This is one reason why its of no use to invest in 10-20 mutual funds of same category. 2-4 funds of a similar
category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund
once you have chosen 2-4 funds.

Myth #13 I need demat account to invest in mutual funds

No , it was never the case.

A lot of people think that unless they have demat account, they cant invest in mutual funds. You can invest in mutual
funds from your demat provider also , but its not mandatory.

So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a demat account and the
units you get sits in your demat account.

So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.

Myth #14 I can start SIP and forget it for long term
A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit
back and relax for next 10-20 yrs. This is not suggested.

Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do
not over do it and start looking at weekly and monthly returns, but do that in 1-2 yrs.

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Myth #15 You cant save tax under 80C in mutual funds
Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual
funds have 80C bene ts. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C

bene ts up to Rs 1.5 lacs.

Myth #16 SIP can be done only on monthly basis
No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get
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monthly income),
but at times if you want to invest on quarterly basis or weekly basis, even that can be done.

However note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of
them do, but at times, some mutual funds might choose to not have that option.

Myth #17 Mutual funds investments are complicated

While investing in mutual funds is de nitely as simple as creating a xed deposit. But its not too complicated. You
need to do one time documentation to start with and once its done, After that you can buy/redeem mutual funds

One place where you might feel complication is while choosing the funds out of the big pool, but with your own
research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.

Here is a good mutual funds tutorial for beginners by Deepak Shenoy

Myth #18 I cant add more lump sum amount in my fund where I do SIP
A lot of investors feel that if they have started an SIP in a fund XYZ, then they cant add additional money in the
same fund under the same folio. It is not true.

When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can
anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced
Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

Myth #19 You need documentation every time you want to invest in mutual

Myth #19 You need documentation every time you want to invest in mutual
funds Thankyouforvoting!
Again a big myth.
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Once you are done with the rst time documentation, after that every time you want to invest and redeem or
switch, you can do it online. The documentation comes into picture only when you want to do changes like your
email id, phone or address etc.

Myth #20 Mutual Funds are not for retired investors

This is entirely false.

There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard earned
money in debt funds and keep them secure while its growing at a decent return. Once can choose an option for
monthly dividend and get an income.

One can also SWP from a fund, and withdraw a xed amount each month. One can invest in a debt oriented mutual
funds, which can have some equity component for some return kick!.

We have helped many clients to plan for their parents retirement money deployment.

Myth #21 I cant invest in mutual funds because I need high liquidity
Again a myth.

Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending
on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can
redeem in 24 hours.

Myth #22 Mutual funds are not that famous among investors
This may be a news to many, but Mutual funds industry will overtake Deposits in Banks very soon (may be a decade).
Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has
doubled in last 4 yrs, and set to grow very fast in the next decade.

In US, mutual funds are already several times bigger than Fixed deposits and its going to happen in India too over
long term. So if you still think that mutual funds are some alien concept, then you are wrong. Its very popular now in
India and one of the standard investments products.

Myth #23 Mutual fund redemption needs permission of broker or advisor

Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either
installing the app of the fund house or through the portal where you have access to.

In worst case, you can anytime go to fund house of ce or CAMS/KARVY of ce and apply for redemption. This does
not need any approval from anyone.
Myth #24 I cant skip an SIP payment once started
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A lot of people
are worried about what will happen if they skip the SIP in a particular month when they are low on


If your bank account does not have suf cient money for a month, then on the SIP date the SIP will not get
processed, but from next month it will go ne again. Mutual funds company does not charge any ne or penalty for
this, but your bank can levy a small charge for this like Rs 200/300.

I think its good, because that way you will be disciplined enough to make sure that your SIPs go on time, but also
does not hurt you too badly in case of emergency

Myth #25 I should stop my SIP when markets are down

Unless you are expert in understanding markets and how they will behave (which I think no one knows), it does not
make a lot of sense to time your SIPs . Just let them run in all kind of markets and focus on your long term goals.

Most of the investors make this mistake that they stop their SIPs when markets tank. Infact, this is the best time
when you should accumulate more Mutual funds units in your portfolio, so that when markets are up, you will reap
the bene ts.

Myth #26 TDS is applicable when mutual funds are sold and redeemed
Mutual funds are not like Fixed Deposits or Recurring deposits.

When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account
and then you need to gure out the tax amount and pay it later.
However there is no exception to this. In case of NRIs, if they redeem their debt funds, then TDS is applicable.
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Myth #27

My money will be locked in mutual funds like other products
Many investors think that in mutual funds their money is locked for a speci c period. in case of mutual funds, most
of the funds are open ended funds, which means that you can invest anytime and redeem anytime.

There is no lock in except in ELSS funds (which comes under 80C) and close ended funds (which speci cally tell you
the duration for lock in)

Myth #28 SIP should not be started when stock markets are very high
Yes, this is actually not a myth, but truth.

But only if you know that stock markets are high ! . If you are very sure you can gure that out then Yes, its better to
wait for markets to tank down, and then start SIP. But 95% of the people dont have time and energy and even
expertise to read these signals.

So thats the reason, why you should not think much when you are starting the SIP. Start your SIPs irrespective of
market conditions. And when markets do down, its time to increase your SIP amount

Myth #29 SIP is always better than Lump sum investments

None of them are better than the other.

SIPs will outperform the onetime investments in certain conditions and vice versa. SIPs however are more suitable
for a common man as its a monthly commitment and averages the risk of markets volatility.

Here is a good discussion on SIP vs Lump sum Investments by Monika Halan and Vivek Law in a show called Smart


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Myth #30 I cant switch from one mutual fund to another fund
Many people do not know that its possible to move from one fund to another fund across the same fund house. You
dont need to sell the fund, get the money in your account and then again invest in another fund of the same fund

So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.

Myth #31 Mutual funds of bigger and trusted brands are always better
Do you know that LIC also has mutual funds business?

However LIC mutual funds are one of the worst performing funds across the whole MF industry. LIC mutual funds is
not same as LIC insurance.

In the same way, SBI mutual funds should not be confused with SBI bank. A lot of rst time investors in mutual funds
investors want to go with trusted brands like LIC, SBI, or HDFC.

Not that mutual funds is a different business, and you need asset management expertise. A small fund house like
Motilal Oswal or even Quantum or PPFAS have high quality funds and should be explored.

Myth #32 I cant partially withdraw from mutual funds

Yes you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to
redeem or the amount you want to redeem (it will calculate the units required). So that way, its a great product.
Because in case of deposits its either the full amount or none (which is one positive thing also)

Myth #33 Only humans can invest in mutual funds

Even companies and partnerships can invest in mutual funds. Its not limited to just humans. So if you are business
owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in
current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a
single click.
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Let us know if you have any more myths or queries related to mutual funds or SIP.

Are you ready to invest in mutual funds?

Are you still waiting to start your mutual funds journey? If Yes, then our team at Jagoinvestor can help you start
your mutual funds journey.

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We help our clients to set their nancial goals, do all the documentation, and give a free portfolio tracker along with
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20 Comments Add Comment

Prabhakar Kanade
April 26, 2017 at 12:37 pm

Excellent Manish


Manish Chauhan

April 26, 2017 at 4:08 pm

Thanks for your comment Prabhakar Kanade


Vijay hegde
April 26, 2017 at 7:27 am

O. K ne


April 25, 2017 at 7:45 pm

Hi manish!

really good article.

i didnt understand myth#30

how can we switch from one fund to another within same amc.
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if i am investing in icici value disc. and i want t switch to icici focused bluechip, what i
understand is i have to redeem icici value disc units and invest in icici focused blue chip.

how the switching is possible without reedemption and how units are transfered from one
fund to another?

please reply


Manish Chauhan

April 26, 2017 at 11:46 am

Hi Abhee

There is something called Switch facility provided by all AMC, Under this, you can
move from one fund to another fund (partially or full) , and there will not be any
redeemption and repurchase. The units will just get transferred to new fund.
However the exit load etc will still apply incase there is any.



April 26, 2017 at 1:39 pm

great! thanks for the information!

Can you tell when this option can be most useful?

Thanks a lot.


April 26, 2017 at 4:03 pm

Hi Manish, doesnt the switch internally perform redemption and

purchase. for a user perspective its a switch but internally it is managed as
redemption and purchase.


Manish Chauhan
Manish Chauhan

April 26, 2017 at 4:07 pm

But the money does not come to your account and then get
reinvested. So technically YES, it has to be redeemption and
Comments(0) repurchase only, but without your account involvement.
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Mayur Bafna
April 25, 2017 at 7:43 pm

Very well documented. Thanks


Manish Chauhan

April 26, 2017 at 11:46 am

Thanks for your comment Mayur Bafna


April 25, 2017 at 6:37 pm


This article gives good insights to the beginner. I have a question ( sorry if it seems stupid to
you or other readers) all returns shown in the mutual fund industry are after deducting all the
charges like expense ratio / charges, commission, transaction charges, exit load,


Manish Chauhan

April 26, 2017 at 11:47 am

Yes, all the returns are after transaction charges, expense ratio (commission is part
of this)



April 25, 2017 at 6:34 pm

collection of ReturnToPoll
Myths CreateYourOwnPoll


Manish Chauhan

April 26, 2017 at 11:47 am

Thanks for your comment Kirti


April 25, 2017 at 5:54 pm

Really informative article and should be circulated every where. Thanks Manish for providing
the useful and complete details.


Manish Chauhan

April 26, 2017 at 11:47 am

Glad to know that Sudhindra ..


April 25, 2017 at 4:52 pm

I want to share something when i suggested mutual fund to my friend, he studied it for
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and liked the idea. Then he was asking me which would be a good date to start the
SIP, and then went on to do analysis such as based on the past performance the SIP functions
best on 5th of the month, or 7th of month etc. I was amused and told him, the SIP is meant to
relax your mind about not having to worry about market timing and you seem to be doing an
exercise which suggests that SIP needs to be timed datewise. I just said, forget it and choose
any date, and forget about it for a year.


Manish Chauhan

April 26, 2017 at 11:48 am

Yea . I dont think there will be any major difference depending on date !


April 25, 2017 at 3:29 pm

Good summary. I think most of the common questions are covered.


Manish Chauhan

April 26, 2017 at 11:48 am

Glad to know that Kiran ..


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