Mutual Fund Myths and Facts: Debunking What Every Investor Should Know Before Taking the Plunge
Mutual Fund Myths and Facts are often misunderstood, causing investors sometimes to make choices based more on hearsay than on actual knowledge. These Mutual Fund Myths often shape investment decisions negatively, especially for first-time investors. When it comes to investing in mutual funds, people often walk in carrying two heavy bags—one full of misinformation, the other packed with half-truths. The world of finance doesn’t forgive ignorance—and when it comes to Mutual Fund Myths, the lack of clarity can cost investors dearly.
Before you hand over your hard-earned money to any fund, you owe it to yourself to separate fiction from fact. Let’s lift the veil.
Myths That Mislead Investors (And How to Steer Clear)
1 : The Illusion of the ‘Best Fund’
Many people believe there is one magical mutual fund that is the best of all. This idea is one of the biggest mutual fund myths and facts people get wrong. In truth, no mutual fund always stays on top. A fund that performs well today might not do the same tomorrow. Instead of chasing the “best fund,” it is smarter to build a mix of different funds that match your financial goals and how much risk you can take.
One of the important mutual fund myths and facts is that one fund fits everyone. That’s not true. What works for a young business owner may not work for someone close to retirement. Every investor is different. You should choose funds based on your goals, age, risk level, and tax needs. Mutual funds are like custom clothes—they should fit you perfectly.
Another truth among mutual fund myths and facts is that spreading your money wisely is better than putting it all into one fund. A balanced strategy helps you handle ups and downs in the market. Don’t run after fame—look for funds that match your needs. Understanding mutual fund myths and facts helps you make smarter choices and grow your money safely over time.
2 : Do Mutual Funds Offer Guaranteed Returns?
One of the most common mutual fund myths and facts people misunderstand is the idea of guaranteed returns. Mutual funds do not work like fixed deposits. Their value keeps changing because they move with the market, interest rates, and the economy. So, it is not possible to promise fixed returns from mutual funds. Even debt funds, which seem stable, can still face risks like changes in interest rates or company defaults.
The truth is, mutual fund investments come with risk. But this risk is also what helps your money grow over time. It’s not a problem—it’s a part of how mutual funds work. Knowing the real mutual fund myths and facts helps you stay prepared and plan for long-term wealth creation with a clear and smart mindset.
3 : History Will Repeat Itself
When it comes to investing, relying on past performance can be risky. One of the common mutual fund myths and facts people get wrong is thinking that a fund with good past returns will always do well in the future. But markets don’t follow a fixed script. A fund that once performed well can struggle when the economy changes or the industry slows down.
Holding on to past performance is like trying to drive while looking only in the rearview mirror—it’s not safe. Smart investors look ahead. They check how the fund is managed today, how steady its returns are, how much risk it carries, and how it fits in with the current market. Understanding the real mutual fund myths and facts helps investors make better choices and avoid surprises.
4 : ULIPs Are the Same as Mutual Funds
Many people mix up ULIPs (Unit Linked Insurance Plans) and mutual funds, but they are very different. One of the common mutual fund myths and facts people get wrong is thinking both are the same. ULIPs mix insurance with investment. They usually have higher charges, are more complex, and have longer lock-in periods. Mutual funds, on the other hand, focus only on growing your money or giving you income. They are more transparent and flexible.
Confusing ULIPs with mutual funds can hurt your financial plans. You might end up in a product that locks your money for too long or gives lower returns than you hoped. By learning the true mutual fund myths and facts, you can choose the right product based on your goals, how much risk you can take, and how quickly you may need your money.
| Year | ULIP – Total Expenses | ULIP – Net Investment | MF – Expense Ratio | MF – Net Investment | ULIP Value in 2025 | MF Value in 2025 |
|---|---|---|---|---|---|---|
| 2020 | Policy Admin: ₹6,000 + Mortality Charges: ₹1,500 + FMC: ₹2,000 (2%) = ₹9,500 | ₹100,000 – ₹9,500 = ₹90,500 | Expense Ratio: ₹1,000 (1%) | ₹100,000 – ₹1,000 = ₹99,000 | ₹90,500 × (1 + 0.11)^5 = ₹146,289 | ₹99,000 × (1 + 0.12)^5 = ₹174,050 |
| 2021 | Policy Admin: ₹6,000 + Mortality Charges: ₹1,500 + FMC: ₹2,000 (2%) = ₹9,500 | ₹90,500 – ₹9,500 = ₹81,000 | Expense Ratio: ₹1,000 (1%) | ₹99,000 – ₹1,000 = ₹98,000 | ₹90,500 × (1 + 0.11)^4 = ₹122,380 | ₹99,000 × (1 + 0.12)^4 = ₹154,817 |
| 2022 | Policy Admin: ₹6,000 + Mortality Charges: ₹1,500 + FMC: ₹2,000 (2%) = ₹9,500 | ₹90,500 – ₹9,500 = ₹81,000 | Expense Ratio: ₹1,000 (1%) | ₹99,000 – ₹1,000 = ₹98,000 | ₹90,500 × (1 + 0.11)^3 = ₹102,568 | ₹99,000 × (1 + 0.12)^3 = ₹137,878 |
| 2023 | Policy Admin: ₹6,000 + Mortality Charges: ₹1,500 + FMC: ₹2,000 (2%) = ₹9,500 | ₹90,500 – ₹9,500 = ₹81,000 | Expense Ratio: ₹1,000 (1%) | ₹99,000 – ₹1,000 = ₹98,000 | ₹90,500 × (1 + 0.11)^2 = ₹85,548 | ₹99,000 × (1 + 0.12)^2 = ₹122,760 |
| 2024 | Policy Admin: ₹6,000 + Mortality Charges: ₹1,500 + FMC: ₹2,000 (2%) = ₹9,500 | ₹90,500 – ₹9,500 = ₹81,000 | Expense Ratio: ₹1,000 (1%) | ₹99,000 – ₹1,000 = ₹98,000 | ₹90,500 × (1 + 0.11)^1 = ₹71,420 | ₹99,000 × (1 + 0.12)^1 = ₹109,680 |
Explanation:
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For each year, we calculate the net investment after accounting for the ULIP Expenses and Mutual Fund Expenses.
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For both ULIP and Mutual Fund, the net investment is then compounded yearly at the respective annual returns (12% for MF, 10% for ULIP after expenses).
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Value in 2025: The investment value of each year’s net investment (after deductions) is compounded to the year 2025 using the 12% return for Mutual Funds and 10% return for ULIPs.
Summary of Investment Growth by 2025:
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ULIP Value in 2025: ₹146,289 (from 2020) + ₹122,380 (from 2021) + ₹102,568 (from 2022) + ₹85,548 (from 2023) + ₹71,420 (from 2024) = ₹528,205
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Mutual Fund Value in 2025: ₹174,050 (from 2020) + ₹154,817 (from 2021) + ₹137,878 (from 2022) + ₹122,760 (from 2023) + ₹109,680 (from 2024) = ₹699,185
5 : More Funds = More Returns
One of the common mutual fund myths and facts is that investing in many mutual funds will always give you more income. This is not true. Having too many funds can actually reduce your returns and make it harder to manage your investments. Most experts agree that 6 to 7 carefully chosen mutual funds are enough to balance risk and growth. More than that, and you’re likely adding the same type of funds again and again, which doesn’t help.
It’s just like cooking. Adding more ingredients doesn’t always make the food better. It’s the right mix in the right amount that makes a tasty dish. The same idea applies to your investments. Smart investors pick funds that do different things. Each fund should have a clear purpose in the portfolio.
Another of the important mutual fund myths and facts is thinking that more is always better. That’s not true with mutual funds. You want quality over quantity. Mutual fund myths and facts also show that overlapping investments give little benefit. Build a simple, strong plan with funds that support each other. Understanding mutual fund myths and facts helps you avoid confusion and reach your financial goals more easily.
6 : A Low NAV Means Higher Profit
One of the common mutual fund myths and facts is thinking that a mutual fund with a low NAV (Net Asset Value) is cheaper and will give better returns. This is not true. A low NAV doesn’t mean the fund is better. NAV just shows the value of one unit of the fund at a given time. It’s like a book’s price—it doesn’t tell you if the book is good or bad.
For example, a fund with an NAV of ₹10 is not automatically better than one with an NAV of ₹100. What really matters is how the fund is managed, its past performance, where it invests, and how it handles risk.
Understanding mutual fund myths and facts helps you avoid wrong choices. Don’t judge a mutual fund just by its NAV. Focus on the fund’s goals, strategy, and long-term results. These are the real ways to check a fund’s value.
By understanding and addressing these Mutual Fund Myths, investors can build a more confident and informed investment journey.
Before diving into the world of mutual funds, make sure you’re not falling for common myths that could derail your financial goals. We’ve created a handy checklist and cheatsheet based on lessons from “Mutual Fund Myths and Facts: What Every Investor Should Know Before Taking the Plunge. Download your Mutual Fund Investment Checklist & Cheatsheet, kindly connect us for any query.
Essential Facts About Mutual Funds
1. Mutual Funds Are Not Only Equity-Based
Many people think of mutual funds only for long-term investing, but there are many types to choose from. One of the common mutual fund myths and facts is that mutual funds are all about long-term returns. The reality is, mutual funds can be used for many goals: debt funds for safety, liquidity funds for quick access, hybrid funds for balance, and sector funds for specific exposure.
Just like a buffet offers many tastes, mutual funds offer a wide range of options. No one should feel forced into only investing in stocks. A balanced approach helps you preserve your assets while aiming for steady growth or even aggressive returns, depending on your goals.
Think of mutual funds as tools for building a portfolio, not a one-size-fits-all solution. Understanding mutual fund myths and facts allows you to personalize your strategy, making your investments more flexible and stronger against market changes.
2. SIP vs. Lump-Sum: Know What Works for You
When it comes to mutual funds, there are two main paths: SIP and lump sum. One of the common mutual fund myths and facts is thinking that one option is better than the other. SIPs (Systematic Investment Plans) are a great choice for people with a regular salary. They help reduce market risk through rupee-cost averaging and encourage disciplined investing.
On the other hand, lump sum investments work better for those who earn irregularly, like from business or freelancing. Timing, market conditions, and financial goals should guide your choice.
In most cases, a balanced approach works best: use SIPs for the main part of your portfolio and invest lump sums when the market drops or when extra money comes in. Understanding mutual fund myths and facts helps you pick the right approach that suits your personal financial situation and goals.
3. ELSS SIPs and Lock-In Period
One of the mutual fund myths and facts that many investors misunderstand is the SIP lock-in period in ELSS (Equity Linked Savings Schemes). ELSS funds attract investors because of potential returns from equities and tax benefits. However, what many don’t know is that with an SIP in ELSS, each payment is treated as a separate investment and is locked in for three years from that specific date.
This means that after 36 months, the first SIP will be accessible, but the last SIP will only mature three years after the final payment. If this rolling lock-in isn’t understood, it can cause problems with liquidity planning.
Understanding these mutual fund myths and facts is key. ELSS provides staggered tax benefits in a disciplined, long-term investment strategy. When you plan your withdrawals correctly, ELSS can work in your favor within your portfolio.
4. SIP Isn’t a One-Size-Fits-All Strategy
SIPs (Systematic Investment Plans) have become the gold standard for equity investments in mutual funds, but one of the mutual fund myths and facts is that they are always the best choice. SIPs are great for long-term wealth building in volatile markets, but they are not always suitable for short-term goals or funds with steady growth.
As some mutual fund myths and facts suggest, SIPs are not ideal for every investment goal. If your target is just a year away, using SIPs in equity funds could expose you to unnecessary risks. Similarly, SIPs in low-volatility funds may not be the smartest choice for growing your wealth.
The key is to align your investment strategy with your goals, time horizon, and risk level. In this case, strategy beats habit. SIPs have a great rhythm, but make sure it matches the financial dance you want to perform.
5. Best Date for SIP – A Misleading Concept
Worrying about the best date to start an SIP (Systematic Investment Plan) is like stressing over the “lucky” day to plant a tree—it’s distracting from what really matters. One of the mutual fund myths and facts is that timing the SIP start date makes a big difference, but what matters most is whether you have enough funds on the debit date and can maintain consistency over time.
SIP success is more about the duration and regularity of your investments than aligning with a specific target date. Trying to time SIPs with market cycles is not only stressful but often fruitless. Instead, choose a date that fits your financial inflow—preferably shortly after your salary or major income deposits. The mutual fund myths and facts show that consistent contributions make the SIP process much more effective than random timing.
6. Avoid Child/Retirement Labelled Funds
Targeted mutual funds for children or retirees are often marketed based on emotional appeal, but one of the mutual fund myths and facts is that they usually fall short in performance and flexibility. These funds often come with high fees, heavy restrictions, and poor management, all hidden behind fancy marketing.
Instead of falling for the packaging, consider investing in diversified or multi-cap funds that offer better visibility and control. Whether it’s for a child’s education or retirement, these actively managed funds, with a long investment horizon (7+ years), will likely perform better without the need for extra bells and whistles. Emotional goals require thoughtful, intellectual strategies, not just products with emotional marketing.
7. Small-Cap and Sectoral Funds: Know the Risk
Are you tempted by the large returns from small-cap or sector-specific funds? One of the mutual fund myths and facts is that these funds can offer great returns, but they can also lead to significant losses. These funds are highly volatile, making them unsuitable for investors with a low to moderate risk appetite or a short investment horizon.
Small-cap funds need patience and a strong tolerance for market fluctuations, along with a long-term perspective. Sectoral funds, on the other hand, depend on the performance of specific sectors and are vulnerable to unexpected economic or regulatory changes. Think of these funds as spices for your portfolio—not the main course. They can add variety, but only if the foundation is strong and stable.
Pro Tips for Mutual Fund Investors
Sometimes, people overlook the value of a skilled advisor when tempted by DIY investing or algorithmic suggestions. One of the mutual fund myths and facts is that a smart financial advisor offers more than just fund names. They provide valuable perspective, help align goals, calibrate risks, and ensure timely rebalancing. Advisors also act as emotional guides during market fluctuations, helping clients stay focused on strategy instead of reacting impulsively.
Investing without advice is like sailing without a compass—possible but risky. Advisors help filter through all the noise, protecting clients from bad decisions and misleading expert advice. Just ensure they are fiduciaries, working in your best interests. In wealth development, experience and knowledge should always be prioritized over excitement and instincts.
Conclusion
In a world full of half-truths and investment mythology, clarity becomes your most valuable asset. Mutual funds, when understood and used appropriately, may be effective partners in your financial path. However, that path begins with challenging falsehoods, accepting complex realities, and personalizing techniques to your own goals. Do not let fads determine your financial future. Believe in careful preparation, lifelong learning, and the eternal wisdom of educated decision-making. Whether you’re a cautious first-time investor or an experienced investor the information should not add noise yet it should guide you. After all, it’s not enough to merely grow your money; you also need to do so with clarity, confidence, and conviction. Dispelling Mutual Fund Myths is the first step toward becoming a confident and successful investor. Understanding Mutual Fund Myths isn’t just about debunking fiction—it’s about building stronger, goal-oriented portfolios. As the investment world evolves, staying aware of these common myths can protect your finances and empower better decision-making.