5 Common Mutual Fund Myths Busted (And What You Should Know Instead)
If you're new to investing, you're not alone in feeling confused about mutual funds. One of the biggest challenges for beginner investors is separating fact from fiction.
Let’s clear the air by debunking 5 popular myths about mutual funds—so you can make smarter, more confident investment decisions.
🔍 Myth 1: You Need to Invest in Mutual Funds for the Long Term Only
✅ Truth: Mutual funds come in all durations—short-term, medium-term, and long-term.
It’s a common belief that mutual funds are only for people with long-term goals. But that's not true.
There are many types of mutual funds designed for different investment horizons. Whether you want to buy a car in a year or save for retirement in 20 years, there's a fund that fits.
Here’s a quick breakdown:
| Goal | Time Frame | Recommended Fund Type |
|---|---|---|
| Buy a car | Short term | Short-term debt fund |
| Save for a vacation | Short term | Liquid fund |
| Home renovation in 1–2 years | Short term | Ultra-short-term fund |
| Passive income | Medium term | SWP (Systematic Withdrawal Plan) |
| Tax savings | Medium term | ELSS (Equity Linked Savings Scheme) |
| Child’s education | Long term | Index funds, hybrid funds, gold funds |
| Retirement planning | Long term | Diversified equity, thematic or sectoral funds |
➡️ Pro Tip: Your investment duration should always match your goal. Don’t commit to a 10-year fund if you need the money in 1 year.
🔍 Myth 2: Top-Performing Mutual Funds Are Always the Best Choice
✅ Truth: Past performance doesn’t guarantee future results.
Many people rush to invest in funds just because they’re at the top of performance charts. But markets are volatile, and today's star performer could underperform tomorrow.
According to Morningstar, less than 40% of Top-performing Equity Funds in a 5-year period continue to outperform in the next 5 years.
Instead of chasing past winners, look at:
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Fund consistency
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Manager’s track record
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Risk-adjusted returns
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How the fund fits your goal and risk appetite
Even Warren Buffett prefers Value Investing over “hot picks.” A slightly lower-performing fund that matches your strategy is better than chasing performance highs.
➡️ Pro Tip: Align funds with your Financial Goals, not market trends.
🔍 Myth 3: Mutual Funds Are an Asset Class
✅ Truth: Mutual funds are a way to invest in different asset classes—not an asset class themselves.
An Asset Class is a group of financial instruments that behave similarly—like Stocks (Equity), Bonds (Debt), Real Estate, Gold, and Cash.
Mutual funds are investment vehicles that allow you to invest in these asset classes with the help of professionals.
Here's how it breaks down:
| Asset Class | Mutual Fund Example |
|---|---|
| Equity | Large-cap, mid-cap, multi-cap funds |
| Debt | Liquid funds, corporate bond funds |
| Gold | Gold ETFs, gold mutual funds |
| Real Estate | Real estate/REIT-focused sectoral funds |
| Cash | Liquid and ultra-short duration funds |
➡️ Pro Tip: Use mutual funds to build a diversified portfolio across asset classes—especially if you're not investing directly in markets.
🔍 Myth 4: More Mutual Funds Means Better Diversification
✅ Truth: Owning too many funds can actually hurt your returns.
Diversification is important—but over-diversification is a real problem. If you invest in too many Mutual Funds (especially ones with overlapping stocks), you might end up with the same exposure multiple times.
According to industry experts, 5 to 7 well-chosen mutual funds are enough for most investors.
Here’s what over-diversification can cause:
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Portfolio overlap (many schemes owning the same stocks)
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Difficult to track performance
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Higher Expense Ratios across multiple funds
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Reduced impact of good performers
➡️ Pro Tip: Diversify by Asset Class and Fund Category, not just the number of funds.
🔍 Myth 5: You Need to Be an Expert to Start Investing in Mutual Funds
✅ Truth: You can start investing with zero experience—and just ₹500 a month.
Many beginners avoid investing because they think it’s complicated. But modern platforms and apps like 5nance have made it incredibly easy.
Thanks to digital platforms and robo-advisors, you don’t need to:
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Understand market trends
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Track stock prices
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Read company financials
You just need to:
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Know your financial goal
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Assess your risk appetite
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Choose the right fund (or use an advisor/app to do that)
✅ Start with SIPs: You can begin investing with as little as ₹500/month.
✅ Use trusted apps: Apps like Groww, Zerodha Coin, and 5nance offer guided investing with simple dashboards.
✅ Stay informed: Read simple blogs or use tools like risk profiler quizzes to shape your plan.
➡️ Pro Tip: Starting small is better than waiting to feel ready. Your learning and confidence grow over time.
📊 Key Stats to Remember:
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Over ₹1.85 lakh crore is invested through SIPs in India (as of 2024).
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Average SIP return over 10+ years in equity funds = 10–12% CAGR
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ELSS funds offer up to ₹1.5 lakh in tax deduction under Section 80C
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Starting SIPs at age 25 instead of 35 can give you 2x the wealth at retirement, thanks to compounding.
Final Thoughts: Don’t Let Myths Hold You Back
Mutual fund investing doesn’t have to be scary or confusing. Most of the fears come from outdated myths or misunderstandings.
Here’s the real takeaway:
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Start small, stay consistent
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Pick funds based on your goals, not trends
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Diversify smartly—not randomly
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Don’t fear what you can learn over time
The sooner you start, the better your chances of building wealth without stress.
Ready to take your first step?
Ask your questions below, or try a SIP with ₹500 and see how simple investing can be.
