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Myths & Facts

Traditionally, we have always understood the importance of savings and investment. With a household savings rate of ~30%1, Indians have historically shown a proclivity towards savings. Despite this, mutual fund penetration in the country is on the lower side and stands at ~11% of GDP2. While there can be myriad factors that contribute to low penetration of mutual funds in the country, one of the primary ones is a lack of understanding about mutual funds. Below, we dispel some of the myths associated with mutual funds.

Myth 1 - Mutual Funds are only for the long-term

It is a myth that mutual fund investments are only for long-term investors. There are different types of categories viz., equity, debt, hybrid, Exchange Traded Funds (ETFs), Fund of Funds (FOFs), etc. that offer the investor a variety of schemes with different investment objective investing in instruments with different time horizons, risk profile and investment strategy. Debt mutual fund schemes allow investors to invest for as minimum as a day whereas equity mutual schemes are to be considered for different long term investment horizon. There are mutual fund schemes that invest in short-term instruments and then there are schemes that invest in equities which are considered ideal for long-term horizon. Between these two, investors have a host of options to choose from, ranging from overnight to 10-years plus.

Myth 2 - You require a large sum of money to invest in mutual funds

Mutual funds are an investment avenue where one can start with an initial investment amount as low as INR 300 (different fund houses may have varying minimum amounts). This benefit is offered through systematic investment plans that provide investors the option to invest a fixed amount of money at regular intervals in the mutual fund scheme of their choice. For an investor looking to make a lumpsum investment, the minimum amount can be as low as INR 500 to INR 5000 (different fund houses may have varying minimum amounts for different schemes).

Myth 3 – Mutual funds only invest in equity markets

Mutual funds schemes invest across asset classes and instruments like equities, government treasury bills, corporate bonds, commercial paper, gold, real-estate etc. depending on the scheme type. One of the benefits of mutual funds is that it offers investors an opportunity to invest in a host of categories to build diversified portfolios through an exposure to multiple asset classes.

Myth 4: Lower NAV is better than higher NAV.

The NAV of a scheme of mutual fund house is the net asset value of each unit of that particular mutual fund scheme. The performance of a scheme will depend on the performance of the underlying investments and not on the NAV of the scheme. For example: Suppose, scheme A has a NAV of INR 20 per unit and scheme B has a NAV of INR 100 per unit. You choose to invest INR 10,000 in each scheme. You will be allotted 500 units in scheme and 100 units in scheme B. Now, assume that both the schemes appreciated by 10%. This means that the NAV of scheme A rises to INR 22 and the NAV of scheme B rises to INR 110. In both cases, you stand to gain INR 1000. Therefore, the current NAV of a scheme does not impact on its potential to generate future returns.

Myth 5 – A demat account is compulsory to invest in mutual funds

In order to invest in mutual funds, it is not essential to have a demat account. If you don’t have a demat account, you have the option to invest in mutual funds either through distributors or by buying directly from the mutual fund house in physical form. Now, you can also choose to buy mutual funds online through websites of the Fund Houses or other various online platforms made available by distributors.

It is very important for an individual to make informed investment decisions. This means that one must be aware of the advantages and disadvantages of the various mutual fund scheme objectives that are currently available and then choose to invest in those mutual fund schemes that are aligned with the investors’ risk-return profile.

Disclaimers

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

It is mandatory for all mutual fund investors to undergo a one-time KYC (Know Your Customer) process. For more info on KYC specifically on: the procedure for completing KYC, for changing address details, for changing contact details.

for changing bank details, visit bnpparibasmf.in/investor-centre/information-on-kyc.

For more info on submitting a complaint or a grievance, visit https://www.bnpparibasmf.in/contact-us

Further, investors should ensure that they transact ONLY with SEBI Registered Mutual Funds listed under Intermediaries/Market Infrastructure Institutions on the SEBI website https://www.sebi.gov.in/intermediaries.html.

An Investor Awareness Initiative.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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