Despite widespread investor education campaigns like “Mutual Funds Sahi Hai”, deep-seated misconceptions continue to harm retail investors’ long-term portfolio growth. Common misunderstandings surrounding NAVs and new fund offers often lead investors into sub-optimal investment choices.
Here are the three costly mutual fund myths and the actual realities behind them:
Myth 1: A Lower Net Asset Value (NAV) Means the Fund is “Cheaper”
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The Misconception: Many investors treat Net Asset Value (NAV) like a stock price, assuming a scheme with a ₹10 NAV is a bargain compared to an established scheme trading at a ₹100 NAV.
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The Reality: NAV reflects the current market value per unit, not valuation or cheapness. Buying 100 units of a scheme at ₹10 NAV or 10 units at ₹100 NAV involves an identical capital deployment of ₹1,000. If both underlying portfolios grow by 10%, both investments will be worth ₹1,100. Fund performance is determined by the quality of underlying assets and manager allocation, not the starting NAV.
Myth 2: New Fund Offers (NFOs) are Better Opportunity Entries Because They Start at ₹10
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The Misconception: Investors often confuse NFOs with stock IPOs, believing that buying units at the initial ₹10 price guarantees early-bird gains or “ground floor” pricing.
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The Reality: NFOs carry no initial discount. Unlike an IPO—where a company sells equity at a specific valuation that could jump on listing day—an NFO simply pools money to purchase market assets at current market valuations. Furthermore, existing funds already have a proven track record, whereas NFOs carry no historical performance data to analyze.
Myth 3: Past Star Performers Will Continuously Top the Charts
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The Misconception: Chasing last year’s top-performing mutual fund will guarantee top-tier returns in the coming years.
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The Reality: Market cycles rotate constantly. A top-performing scheme often benefits from specific sectoral headwinds, market cap favors, or thematic rallies that may not persist. Studies consistently show that fund performance mean-reverts over long time horizons. Selecting funds based purely on short-term past performance rather than investment philosophy, risk-adjusted returns, and consistency can lead to severe underperformance.
