Mutual Funds - Expectation vs Reality

Mutual funds are no more an unknown tool or hidden investment option. Investing your savings in today's day and age can be pretty overwhelming. Investment through mutual funds is so accessible to the public. At the same time, the significant population in India is not financially literate, which creates few specific expectations regarding investment in mutual funds.

Investment is definitely a game of facts, data, and information but the journey to investment starts with clarity and a positive mindset toward money.

Let's explore the expectation and establish the reality regarding mutual funds investment.

Expectation - Mutual funds givers constant returns year on year at the investment.

Reality - Mutuals can't always give equivalent or constant returns. Usually, the websites show the return on mutual funds from the date they have been started, but that doesn't imply it gives the same returns every year. Mutual fund returns can be low at some point or at an all-time high, depending on various market factors.

Expectation -SIP can only be done on a monthly basis

Reality -Majorly people create monthly SIP on Mutual Funds, though SIP can be done on a daily, quarterly, or even half-yearly basis. Most investors automate SIPs as it simplifies the investing process and builds a discipline for constant investment. Automation of investment through SIPs encourages monthly investing. Moreover, investors have the option to create SIPs at different regular intervals. The interval between two SIPs is a personal call by an investor depending on their access to funds for investments.

Expectation - Mutual funds are equivalent to the stock market.

Rality-That's something most beginner investors think that mutual funds are the same as the stock market. The stock market is for investing in equity shares, whereas mutual funds consist of

investing in different companies at varying proportions.

Expectation - Mutual funds are risk-free.

Reality- Many people are under the impression that mutual funds are entirely risk-free. This is not totally true, and one of the main risks is that you could lose money if your mutual fundhas a wide market exposure.

Mutual funds are made up of stocks, bonds, and cash in proportions that vary with each fund. The amount of risk associated with a mutual fund depends on the type of assets it owns. The more stocks and other volatile investments in its holdings, the greater the risk.

Generally speaking, large-cap funds have less risk than small-cap funds because there is less chance for rapid changes in their underlying value. Likewise, bonds have less risk than stocks because their value does not fluctuate as much. Cash holdings also tend to be very stable.

Expectation -Multiple Mutual Funds will always generate higher returns.

Reality - Mutual funds are already a diversified form of investment, so investing in multiple mutual funds of the same category won't help to diversify. Investing in multiple mutual funds neither help to diversify the portfolio nor generate higher returns. It can also backfire on the investor by lower returns and stress of managing diverse mutual funds. Returns on mutual funds depend on various market factors that apply to all mutual funds.

Expectation -It needs a considerable amount to start investing in mutual funds.

Reality- Still, a sector of the population thinks investing in mutual funds requires a large sum of money. It doesn't require much money to start investing; all it needs is a will to invest and the mindset to create wealth. One can start investing in mutual funds for as low as Rs. 100 per month by investing in mutual funds through SIP.

A reality check is always needed to start something new, and even the things are known. It helps to grow and think strategically. So don't make random expectations at the start of the investment journey; focus on disciplined and strategic investing.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.