Mutual Fund Myths You Should Stop Believing

17 December 2025

When it comes to investing, mutual funds often sit right at the top of the list for beginners and even seasoned investors. They're affordable, relatively easy to understand, and offer a great way to diversify your portfolio. But let’s be honest — mutual funds come with their fair share of myths and misconceptions that often trip people up.

Maybe you’ve heard something from a friend, seen a scary headline, or watched a YouTube video that made you think twice about investing in mutual funds. The thing is, not everything you hear is true. A lot of it? Well, it's straight-up outdated or just plain wrong.

So, buckle up, because we’re going to expose some of the most common mutual fund myths you should stop believing right now. And who knows — this might just give your investment journey the clarity it needs.

Myth #1: Mutual Funds Are Only for Experts

Let’s start with this big one. A lot of folks believe mutual funds are too complicated for the average person and only meant for financially-savvy professionals.

Truth bomb: Mutual funds are built for everyday people.

They’re designed so that anyone — whether you’re a college student starting out, a young professional, or someone planning retirement — can invest without needing a finance degree. Fund managers handle all the nitty-gritty stuff like picking stocks or bonds, rebalancing the portfolio, and managing risk.

All you have to do is pick a fund that aligns with your goals, set up a systematic investment plan (SIP) if you want, and stay consistent. Pretty manageable, right?

Myth #2: Mutual Funds Guarantee Returns

This is a dangerous one. People often think that mutual funds offer guaranteed income. Spoiler alert: They don’t.

Mutual funds invest in market-linked instruments like stocks or bonds, which means they're exposed to market fluctuations. Think of it like a rollercoaster — there are ups and downs, and that’s totally normal.

Sure, there are some safer options like debt mutual funds that aim for stability, but even those carry risks like interest rate risk or credit risk. If you're looking for “guaranteed returns,” a fixed deposit might be your jam — but don't expect the same growth potential.

Myth #3: Higher Returns Mean a Better Mutual Fund

Sounds logical, right? If Fund A gave 20% last year and Fund B only gave 10%, then Fund A must be better.

Not so fast.

Chasing past performance can be a trap. Past returns don’t guarantee future results. A fund that outperformed last year may underperform this year. There are many factors behind those numbers — market conditions, fund manager changes, sector exposure, and so on.

A better strategy? Look at long-term consistency, how the fund performed during market crashes, expense ratios, and whether it matches your risk profile and investment goals.

Myth #4: SIPs Are Only for Small Investors

There's this idea floating around that Systematic Investment Plans (SIPs) are only meant for people with low budgets — like someone investing just ₹500 or ₹1000 a month.

Well, that’s not entirely true. SIPs are for everyone. They’re just a tool — a very smart tool — to invest regularly and build wealth over time without worrying about market timing.

Even high-net-worth individuals use SIPs to maintain discipline in their portfolios. Whether you're investing ₹500 or ₹50,000 a month, SIPs make your life easier by automating the process and taking emotion out of the equation.

Myth #5: You Need a Huge Lump Sum to Start

This one stops way too many people before they even begin. The myth is that you need a lot of money to start investing in mutual funds.

Reality check: You can start with as little as ₹100 (and in some cases even ₹50) through SIPs. That’s less than the cost of your weekend pizza!

You don’t need to wait until you have “enough savings.” Start small, be consistent, and let compounding work its magic over time. Remember, it’s more important to start than to start big.

Myth #6: Mutual Funds Are Only for Long-Term Goals

Okay, yes — mutual funds are fabulous for long-term goals like retirement or buying a house. But that doesn’t mean they’re only good for the long haul.

There are short-term mutual fund options too, like liquid funds or ultra-short duration funds. These are great if you’re parking money for a few months or a year, while still wanting better returns than your regular savings account.

So whether it’s your wedding in two years or your dream Europe trip next summer — mutual funds can help.

Myth #7: Mutual Funds Are Always Better Than Stocks

This one's a bit tricky.

While mutual funds offer diversification and professional management, they’re not automatically better than direct stocks. It depends on your knowledge, time, and appetite for risk.

If you're someone who enjoys researching companies, tracking markets, and making your own investment decisions, direct stocks might make sense for you. But if you’d rather leave it to the experts and benefit from diversification with less effort, mutual funds are a great choice.

It’s not this-or-that — you can do both!

Myth #8: Mutual Funds Are Tax-Free

Nope. Mutual funds do come with tax implications.

- For equity mutual funds, gains held for over a year are considered long-term and taxed at 10% (if gains exceed ₹1 lakh in a year).
- For debt funds, holding less than three years leads to short-term capital gains, taxed as per your income slab. Over three years? You get the long-term treatment with indexation benefits.

And yes, dividends from mutual funds are taxed too. Always account for taxes in your investment plan.

Myth #9: NAV Determines Performance

Net Asset Value, or NAV, often confuses beginners. It’s the price of one unit of a mutual fund, but people assume that a lower NAV means a cheaper or better fund.

Not true. NAV is just a number — like a price tag. Two funds can have different NAVs but perform the same in terms of returns. Instead of looking at NAV, focus on factors like fund performance, consistency, portfolio quality, expense ratio, and track record.

It’s like judging a book by how thick it is — makes no sense, right?

Myth #10: You Can’t Lose Money in Mutual Funds

This one can seriously hurt if you believe it. Yes, mutual funds have the potential to grow your wealth, but they’re not risk-free.

You can lose money, especially in short-term periods or during market downturns. That’s why it’s so important to assess your risk tolerance, diversify your investments, and stay invested for the long run.

Remember, time in the market is more important than timing the market.

So, Why Do These Myths Exist?

A lot of these myths come from half-baked advice, old-school thinking, or just plain lack of awareness. For example, older generations might have avoided mutual funds because they were less accessible or trustworthy back then. Or maybe your coworker once had a bad experience with a fund and now thinks they’re all risky.

At the end of the day, financial literacy is your best investment. Don’t let myths hold you back from achieving your financial goals.

How to Really Evaluate a Mutual Fund

If you’re feeling more confident about mutual funds now, that’s awesome — but you might be wondering how to actually pick one. Here’s a quick checklist:

- Investment Goal: Is it short-term, long-term, retirement?
- Risk Profile: Are you a conservative, moderate, or aggressive investor?
- Fund Type: Equity, debt, hybrid, index — pick based on your need.
- Performance: Check how the fund performed over 3, 5, and 10 years.
- Expense Ratio: Lower is generally better as it impacts your returns.
- Fund Manager: Look for someone with a solid track record.
- Assets Under Management (AUM): Higher AUM can mean higher trust, but not always better returns.

Final Thoughts

Mutual funds are not magic, and they’re definitely not scary. They’re one of the most accessible and practical ways to start investing. But like anything else, what you don’t know can hurt you. So ditch these outdated myths, do your research, and invest with confidence.

Investing isn’t about knowing everything — it’s about being willing to learn and taking action. And if you’ve made it this far in the article, you’re already ahead of most people.

So go ahead — start small, stay consistent, and watch your money grow over time. Just don’t let a myth stop you from building the future you deserve.