Four top fund managers bust the biggest myths about mutual funds in India

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The worst enemy of one’s investment goals are emotional drivers and behavioural biases.

Mutual funds are often looked upon as one of the best investment avenues for retail investors. They can start investing in equities or debt through mutual fund schemes with a small sum of money through Systematic Investment Plans (SIPs).

Despite the benefits to investors, there are several myths associated with the product. Below, some of the top fund managers of the country debunk the biggest myths.

A Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC

Balasubramanian, who oversees funds worth over Rs 2.7 lakh crore, believes that there are many myths including the belief that mutual funds are only for older people and not millennials and that regular investments should be stopped when markets are down.

“The worst enemy of one’s investment goals are emotional drivers and behavioural biases,” said Balasubramanian.

“SIP is an effective tool, which provides the twin benefits of rupee-cost averaging and the power of compounding. SIPs are not for timing the market but to enable you to spend time in the market with a disciplined approach. Any knee jerk reaction as a result of sudden market actions… can be detrimental to the investment journey,” he added.

According to Balasubramanian, it is always better to start early as “investing is a lifelong exercise” and “the earlier one starts the better would be the compounding benefit and also the learning in terms of how to navigate through market cycles provided one stays invested long enough.”

“Your future planning should ideally start right from the time you start earning as planning right at the beginning could determine your future course and long-term success,” said Balasubramanian.

Sundeep Sikka, CEO of Nippon India Mutual Fund

Sundeep Sikka, whose firm manages assets under management worth more than Rs 3.55 lakh crore, feels that the most common myths surrounding MFs are that one needs a lot of money to invest in MFs and that these are instruments only to invest in equities and not debt.

“Considering the fact that most of the time investment discussions for mutual funds revolve around equity funds, many investors consider mutual funds as the gateway to equity investing alone,” said Sikka.

“However, it is for the investors to realise that mutual funds provide a wide range of investment options to invest across different asset classes, including debt, equity, gold, etc. One can also consider hybrid funds, which provide an assortment of exposures into different asset classes within a single fund,” added Sikka.

The fact is that one can start an SIP for an amount as low as Rs 500, said Sikka while debunking the myth that mutual fund investments require a lot of money.

“This is also one of the most common myths revolving around mutual funds, that one needs a lot of money to invest in MFs. Even if one wishes to invest lump sum amounts, one can invest with a minimum amount of Rs 5,000. As such, boarding the investment journey through mutual funds is quite affordable and convenient,” said Sikka.

Swarup Mohanty of Mirae Asset Mutual Fund

Mohanty, who oversees an AUM of nearly Rs 75,000 crore through 35 lakh folios, believes that since instruments like bank deposits and commercial papers offer assured returns, many think that debt schemes are safer than equity schemes.

“It is not prudent to assume that all debt schemes are safer than equity schemes. There are two kinds of risks in debt schemes – interest rate risk and credit risk,” said Mohanty.

“Like bull and bear markets in equity, interest rates also move in cycles. If an issuer defaults on interest or principal payment, then the investor may have to suffer a permanent loss. Investors should always be mindful of credit risks when investing in debt funds because credit risk can be permanent,” explained Mohanty.

While debunking the myth that mutual funds are not only for equity but also for debt, Mohanty highlights the fact that debt funds have the potential of giving superior returns compared to traditional fixed-income investments and hence SIP in debt funds can also benefit from compounding.

Ashwin Patni, Head – Products & Alternatives, Axis AMC

Patni said there is a myth that mutual funds offer only limited options when it comes to investing.

“Mutual funds offer a high number of products – Largecap Fund, Midcap Fund, Smallcap Fund, Multicap Fund, Credit Fund, Bond Fund, Duration Fund, Liquid Fund, Gold Fund, Retirement Fund, Children’s Fund, Hybrid Fund, Global Fund, Sectors Fund, Fund of Funds and so on,” said Patni.

Interestingly, mutual fund marketing and advertising campaigns end with a mandatory disclosure that states mutual fund investments are subject to market risks and this makes many investors believe that MFs are a risky proposition, says Patni.

“Mutual funds are market-linked products and hence investors are cautioned before they invest about market-related risks. Mutual funds are managed professionally and every fund manager endeavours to manage these risks while capturing opportunities across the relevant markets,” said Patni, while adding that mutual fund schemes are bucketed into six risk categories ranging from ‘low’ to ‘very high’ for the ease of investors

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