Investors often fall prey to misconceptions about mutual funds, from confusing NAV with share price to overestimating recent performance. Experts warn such myths can lead to poor long-term decisions, emphasising the importance of understanding risks, costs, and investment strategies.
Mutual fund myths can be costly because they shape decisions long before investors realise they have been misled. Kuvera argues that many of the most persistent assumptions in investing survive because they contain a sliver of logic: a low net asset value can look like a bargain, recent performance can feel like the best available guide and stopping a systematic investment plan during a fall can seem prudent in the moment. But as the platform notes, those instincts often lead investors away from sound, long-term decisions.
One of the most common errors is treating a fund’s net asset value as though it were a share price. It is not. NAV simply reflects the per-unit value of the fund’s assets, so a scheme priced at ₹10 is not inherently cheaper or more attractive than one priced at ₹100. What matters is the return generated by the underlying holdings, not the number printed next to the unit. Industry commentators have made the same point repeatedly, stressing that investors should judge a fund by strategy, portfolio quality and performance over time rather than by headline price.
Another enduring mistake is assuming that strong recent results can be repeated. Kiplinger has noted that mutual funds are investment vehicles, not guarantees of market-beating returns, and that understanding the underlying assets matters far more than chasing recent winners. Kuvera makes a similar point, saying market cycles shift, sectors fall in and out of favour and funds that shine in one year can struggle the next. That is why star ratings and past returns should be treated as data, not prophecy.
The belief that a systematic investment plan automatically produces positive returns is also misleading. SIPs are useful because they spread purchases over time and reduce the risk of entering the market at the wrong moment, but they do not remove market risk. Kuvera says that during prolonged downturns, returns can remain weak for extended periods, even for disciplined investors who keep contributing every month. The point of a SIP is consistency, not certainty.
There is also a broad tendency to treat mutual funds as if they were as safe as fixed deposits. They are not. Mutual funds are market-linked, and their risk depends on the category: large-cap equity funds tend to be less volatile than small-cap funds, while debt funds face their own risks from credit quality and interest rates. The riskometer exists precisely because returns can rise and fall, and investors should not confuse professional management with capital protection.
Cost matters as well. Kuvera highlights that even a small difference in expense ratio can erode returns over long periods because fees compound just as gains do. That warning aligns with broader fund-industry commentary, which says investors should be wary of assuming that a fund’s wrapper, size or popularity tells them enough. Whether the product is active or passive, what matters is whether the cost and strategy suit the goal. As the Fool has argued in related coverage of index funds, passive investing still requires monitoring, diversification is not automatic and no fund structure is risk-free. In that sense, the real lesson is simple: avoid shorthand, read the fine print and invest on evidence, not assumption.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
