- Date : 25/11/2022
- Read: 3 mins
Financial myths to avoid
Financial literacy is a common concern. Many individuals do not know how to manage their finances optimally. The little knowledge that they might have is often mired in common myths propagated by those who do not understand the nitty-gritty of finances.
Believing in these common myths can be bad for your overall financial health. It might limit you from exploring the financial resources available in the market and creating the optimal corpus for your goals. So, here are common myths that you should know about and avoid at all costs.
Myth #1 – Lower NAVs in mutual funds = higher returns
A very common myth that mutual fund investors have is that lower NAVs convert to higher returns. That is why they eagerly invest in NFOs (New Fund Offers), wherein the NAV is very low.
The reality
Lower NAVs do not mean lower returns. The NAV is calculated based on the value of the portfolio, and newer funds have lower NAVs. It does not mean that they can generate good returns. You need to assess the actual returns offered by the fund to know whether it is a good investment or not.
Related - Here's a dummies guide to mutual funds
Myth #2 – Plan for retirement when older
Younger individuals tend to put off retirement planning, thinking that there’s a lot of time for the same. Many believe that retirement planning should be done at an older age when retirement is fast approaching
The reality
Retirement planning, when started young, can help you create a sizeable corpus that will be sufficient to meet the inflated costs post-retirement. When you start young, you can save small amounts regularly and watch the corpus grow with time through the power of compounding. So, ideally, retirement planning should start at the earliest.
Myth #3 – Fixed income investments are the best for secured returns
Investors believe that fixed-income assets like fixed deposits, PPF, NSC, etc. are better than equity since they can deliver guaranteed returns.
The reality
Fixed-income investments are good, given their stable returns. However, such instruments do not factor in inflation. As such, you might lose out on the real value of returns. Thus, your portfolio also needs equity and market-linked assets that can deliver inflation-adjusted returns, giving you a sufficient corpus to meet inflated expenses. Moreover, over time, equity volatility smoothens out, and you can actually earn decent returns.
Myth #4 – Investment needs considerable savings
Many people believe that if they have limited incomes, they cannot invest.
The reality
The reality says otherwise. Investments do not require considerable savings. You can start saving with as little as Rs.100 as schemes like fixed deposits, PPFs, etc. allow small savings too. Moreover, if you want to invest in mutual funds, you can start a SIP at as low as Rs.500 monthly.
Do you believe in any of these myths?
If you do, it's time you see the real picture. Know the reality of money and make the right choices for effective financial planning. Also read, Here are some tax-filing myths debunked
Check out more personal finance myths and their reality
Financial literacy is a common concern. Many individuals do not know how to manage their finances optimally. The little knowledge that they might have is often mired in common myths propagated by those who do not understand the nitty-gritty of finances.
Believing in these common myths can be bad for your overall financial health. It might limit you from exploring the financial resources available in the market and creating the optimal corpus for your goals. So, here are common myths that you should know about and avoid at all costs.
Myth #1 – Lower NAVs in mutual funds = higher returns
A very common myth that mutual fund investors have is that lower NAVs convert to higher returns. That is why they eagerly invest in NFOs (New Fund Offers), wherein the NAV is very low.
The reality
Lower NAVs do not mean lower returns. The NAV is calculated based on the value of the portfolio, and newer funds have lower NAVs. It does not mean that they can generate good returns. You need to assess the actual returns offered by the fund to know whether it is a good investment or not.
Related - Here's a dummies guide to mutual funds
Myth #2 – Plan for retirement when older
Younger individuals tend to put off retirement planning, thinking that there’s a lot of time for the same. Many believe that retirement planning should be done at an older age when retirement is fast approaching
The reality
Retirement planning, when started young, can help you create a sizeable corpus that will be sufficient to meet the inflated costs post-retirement. When you start young, you can save small amounts regularly and watch the corpus grow with time through the power of compounding. So, ideally, retirement planning should start at the earliest.
Myth #3 – Fixed income investments are the best for secured returns
Investors believe that fixed-income assets like fixed deposits, PPF, NSC, etc. are better than equity since they can deliver guaranteed returns.
The reality
Fixed-income investments are good, given their stable returns. However, such instruments do not factor in inflation. As such, you might lose out on the real value of returns. Thus, your portfolio also needs equity and market-linked assets that can deliver inflation-adjusted returns, giving you a sufficient corpus to meet inflated expenses. Moreover, over time, equity volatility smoothens out, and you can actually earn decent returns.
Myth #4 – Investment needs considerable savings
Many people believe that if they have limited incomes, they cannot invest.
The reality
The reality says otherwise. Investments do not require considerable savings. You can start saving with as little as Rs.100 as schemes like fixed deposits, PPFs, etc. allow small savings too. Moreover, if you want to invest in mutual funds, you can start a SIP at as low as Rs.500 monthly.
Do you believe in any of these myths?
If you do, it's time you see the real picture. Know the reality of money and make the right choices for effective financial planning. Also read, Here are some tax-filing myths debunked
