Myth 1: Mutual funds are suitable only for old investors.
Fact: Nope, Mutual funds cater to all kinds of investors, no matter their age, income, risk tolerance, goals and so on…
The number of mutual fund options available in the market for investment is vast, each with its own goals, investment styles and strategies. So any investor can find a mutual fund that suits his/her investment goals.
Myth 2: Mutual funds are always a long-term commitment.
Fact: This is, in fact, a common misconception. Mutual funds are versatile investment vehicles that can cater to both short-term and long-term goals. Several short-term funds offer quick liquidity but typically provide lower returns on investment. These types of funds are ideal for investors who prefer not to commit to long-term investments and wish to liquidate their assets shortly.
Myth 3: Mutual funds require high initial capital.
Fact: Investing in a mutual fund does not require a large capital investment. It’s quite the contrary. SEBI has set the minimum amount for lump sum investment in mutual funds as ₹100 and the Systematic Investment Plan (SIP) as ₹500.
The low barrier of entry encourages more and more investors to participate in the market.
Myth 4: The returns from Mutual Funds are tax-free.
Fact: Yes and No.
You see, the returns from the Equity Linked Savings Scheme (ELSS) can offer a tax deduction from total income of up to ₹1.5 lacs under Section 80C of the Income of Tax Act of 1961. You will end up saving around ₹46,800 each year on taxes. One should remember that ELSS has a minimum lock-in period of three years.
But the returns and/or dividends offered on any other mutual fund schemes are taxable under the heading ‘Income from capital gains’ This includes both short-term and long-term capital gains tax.
Myth-5: Having a DEMAT account is mandatory to invest in Mutual funds.
Fact: No. You do not need a DEMAT account to invest in Mutual funds. But having a DEMAT account makes accessing, handling, and managing mutual funds and other investments significantly easier. Ultimately, the choice of how to invest lies with the investor, but having a DEMAT account is highly recommended for its convenience factor.
Let's get to myth-busting
We have successfully busted 5 of the most common myths surrounding mutual funds. Now you have more clarity about the whole mutual fund.
Until then,
Happy Investing!!!
Also Read: Pump and Dump Schemes Explained: Tips for Safe Investing
