Myth #1: Mutual Funds are Redundant in the Face of Inflation
Not true! Depending on the nature of your mutual fund investment, you might stand a better chance of beating (or least keeping up with) the rate of inflation. What’s important to realise is that inflation is a natural, inevitable feature of the way our economy functions, and to invest accordingly. A mutual fund that specialises in equity is a clever way around the problem of inflation, as it provides variable returns. Inasmuch, this implies that equity mutual funds may provide returns that stay on top of the rate of inflation, which is also variable. This as opposed to investing in a security which provides fixed returns, which will eventually fall behind the inflationary nature of the market.
Myth #2: A mutual fund investment is a long-term investment.
This is highly untrue. As an investor, you can pick and choose which type of mutual fund to invest in. A fund manager who works to achieve the investor’s goals oversees these funds. Depending on what your investment goals are there will always be different options available to you in this market. As mentioned earlier, one can use these types of investments to generate wealth in the long-term, or to provide a recurring income in the short-term.
Myth #3: As a fund’s assets increase, costs decline.
For many investors, this myth continues to remain a hope. However the truth is that the richer a mutual fund company gets, the fees that they charge for their services tends to increase. As an average, lone investor, you will not be protected from these costs. In theory, as a fund’s assets increase, its consumers are supposed to share a decreasing percentage of its costs. This is very rarely seen in practice.
Myth #4: The difference between NAV and stock prices.
The NAV, or net asset value, of a mutual fund denotes the intrinsic, or underlying, value of each of the fund’s units. It is not always an indicator of the market price of the respective unit. The myth that a lower net asset value indicates fewer investment costs for the buyer is one that has been used by investment companies time and again, and should be avoided by the sensible investor.
Myth #5: Returns from mutual funds almost always meet investor expectations.
This is possibly the biggest myth concerning these investments. In truth, really, many of them do not even accrue enough returns to meet their stipulated benchmark figures.
Before putting your faith (and money) in a mutual fund, it is important to give your investment a reality check. Ask yourself how much you want to invest, and why. What is the fund manager’s strategy, and how has the fund been performing over the last few years? These are important questions that you should yourself before taking the plunge.
