The money myths that survive because part of them is true

Why a money myth survives

Every myth below is a true sentence about the wrong quantity. A low NAV does buy more units. A nominee does receive the money. A high credit score does get an application approved. The true part is real in each case; the conclusion drawn from it is not.

That structure is why these beliefs last. A claim that is simply false gets corrected the first time somebody checks it. A claim that is accurate about one quantity and silently substituted for another cannot be corrected that way, because every time it is challenged the true half defends it. Point out that a ₹10 NAV is not cheap and the reply is that ₹10,000 really does buy 1,000 units. It does. That was never the disputed part.

The second reason is who repeats them. These do not arrive through advertising, where a reader’s guard is up. They arrive from a parent, a colleague, a brother-in-law who has been right about other things — people with no product to sell, which removes the usual reason to check. That is a judgement about how they spread rather than a measured fact — but it is the half of the pattern that explains why nobody goes and looks.

So one test runs through this whole article, and it is worth having before the examples. Name the quantity the claim is about. Then name the quantity your decision depends on. If they are different, the claim is a myth however true it is.

Each myth below gets the mechanism that makes it wrong, and a link to the article that treats the concept in full. Nothing here tells you what to do with your money; the point is to leave you able to work the answer out.

Myth 1: a low NAV means the scheme is cheap

Take the value of everything a scheme holds, divide by the number of units outstanding, and you have its net asset value — the NAV. It is a denominator, and the fund house chose it.

Put ₹10,000 into a scheme priced at ₹10 a unit and you get 1,000 units. Put the same ₹10,000 into one priced at ₹500 and you get 20 units. If both portfolios then rise 10%, both holdings are worth ₹11,000. The unit counts differ by a factor of 50 and the rupees are identical, because your return depends on what the portfolio did, not on how the fund house sliced it. Indian schemes allot fractional units, so nothing about the slicing even limits what you can buy or sell.

Where this costs money is the new fund offer. A new scheme opens at ₹10 and sits beside an existing one at ₹340, and the ₹10 reads as a discount. It is not a discount — it is the absence of a history. The older scheme’s ₹340 is a record of what it has already earned; the new one’s ₹10 records nothing at all. A low NAV is also produced by an ordinary payout: a scheme that distributes income has its NAV cut by exactly what it paid out, which makes it look cheaper while leaving the holder no better off.

The price you actually pay for a scheme is the annual charge levied on what you hold — the expense ratio — plus the exit load deducted if you redeem inside the period the scheme names. Those are the numbers that answer “is this dear or cheap”, and neither is visible in the NAV. What NAV is for is valuing your holding and settling your transaction, and what a scheme charges is a separate question with a separate number.

Call it the ₹10 illusion: a unit price mistaken for a valuation. Nobody would judge two flats by the price per brick.

Myth 2: the nominee inherits the money

Nomination tells an institution whom to pay. Succession decides who owns what was paid. Those are two different questions, answered by two different bodies of law, and the second one does not consult the first.

A bank, a fund house or an insurer needs a way to release money and close its books without waiting for a family to settle its affairs. The nomination is that mechanism: it gives the institution a valid discharge. It does not convert the person named into the owner. As a general rule the nominee receives the money and holds it for whoever is legally entitled — under the will if there is one, and under the succession law that applies to the deceased if there is not.

The specific mistake is treating a filled nomination form as estate planning. The form is quick, free and available at the counter; a will takes an afternoon and a conversation nobody enjoys, so the form gets done and the will does not. The money then reaches the nominee exactly as intended, and the dispute starts after the payout rather than before it — which is worse, because the funds have already moved and unwinding a transfer is a different order of difficulty from agreeing a split.

The mirror-image error costs just as much: leaving the nomination blank because a will exists. A will settles ownership but does not tell the bank whom to pay today, so the family waits on documentation while the account is frozen. The two instruments do different jobs, and what a nomination is across each asset class sits beside what a will actually settles rather than instead of it.

How the two interact varies by asset class and by which succession law applies, so the useful move is to know that payment and ownership are separate questions and to ask which one you have arranged.

Myth 3: a good credit score means you can borrow comfortably

A credit score is a summary of how you have repaid in the past, expressed on a common scale of 300 to 900. It answers one question: has this person paid on time before? It is computed from your credit file, and a credit file is a record of borrowing and repayment — what actually goes into the calculation is limits, balances, ageing and defaults, not your salary and not what you spend.

So a lender runs two tests, not one. The score settles the record. A separate affordability test looks at income and at the instalments you already carry, and every lender sets its own ceiling on what share of income may go to instalments — that ceiling is the lender’s policy, not a rule. Approval means both tests cleared at thresholds that exist to protect the lender’s recovery, not your monthly budget.

Here is the part that surprises people, and it is mechanical rather than arguable. Take a loan and repay it perfectly and your score rises, because the file now records more debt handled well. In the same movement the new instalment consumes headroom in the affordability test, so the amount the next lender will sanction falls. Score and capacity moved in opposite directions at the same time — a score is a record of debt handled, not evidence of debt capacity created.

The true part is worth keeping: a strong score is worth real money, because it shows up in the interest rate offered rather than in the size of the sanction. A rate difference of one percentage point on a 20-year loan is not a rounding error. That is what the score buys, and how the score itself is built is a different question from what a lender will actually sanction.

The comfortable-borrowing question is answered by neither test. It is answered by the instalment against your own surplus after everything else you spend — arithmetic you can run on the amortisation schedule before anyone approves anything.

Myth 4: you need a decent sum before you start

This one is true about rupees and wrong about the input that is actually scarce, which is years.

Run the arithmetic with the assumption stated so you can change it. Take ₹5,000 a month for 25 years at an assumed 11% a year, instalments at each month end: you put in ₹15 lakh and finish with roughly ₹79 lakh. Now take ₹10,000 a month for 15 years on the same assumption: you put in ₹18 lakh and finish with roughly ₹45 lakh. More money in, and a little over half as much out. The second saver was not less disciplined — twice the monthly commitment says otherwise. They were ten years later, and the ten years were doing more work than the doubling.

The reason the myth feels right is that it holds the years still while comparing the rupees, when the whole decision is about the years. It is also self-fulfilling in a specific way: the sum that feels like enough to start rises with income, so the threshold moves as fast as the saver does, and the waiting never ends by itself. Waiting to understand things first has the same shape, since the waiting is spent earning nothing while the education could have run alongside a small amount.

None of which makes starting unconditionally right, and the honest trade-off has two limbs. Money that has a job inside a year does not belong in a volatile asset at all, however early — that is what an emergency fund is for. And an amount so small that the holder abandons it in the first bad year destroys the years just as effectively as never starting, because a staggered contribution schedule only works while it runs.

The 11% is an assumption, not a forecast, and it is stated so you can redo the sum with your own. What does not depend on the assumption is the shape: the earliest rupees carry the longest multiplier, and they are the ones the myth persuades people to skip.

Myth 5: rent is money down the drain

The true part: rent buys you a month of housing and nothing you keep. The error is in what it gets compared with.

Almost everyone compares rent with the whole loan instalment. That pairs a cost with something that is not one. An instalment has two limbs, and the principal limb is not an expense at all — it moves money from your bank account to your equity in the flat, one pocket to another. The interest limb is an expense, and it buys nothing you keep, in the same way rent does not.

So the comparison that answers the question is rent against the non-recoverable costs of owning: loan interest, property tax, society maintenance, building insurance, the repairs a tenant would have called the landlord about, and the return foregone on the money locked into the down payment and the transaction costs. That last item is not optional: a housing loan never funds the whole price, because RBI sets binding loan-to-value ceilings — 90% up to ₹30 lakh, 80% above ₹30 lakh and up to ₹75 lakh, and 75% above ₹75 lakh — so the equity a buyer puts in is real capital, and it is doing nothing else while it sits in the flat.

Put an illustration on it, inputs stated. A flat at ₹80 lakh, ₹20 lakh down and a ₹60 lakh loan at an assumed 8.5%: interest in the first year is 8.5% of the opening balance, ₹5.1 lakh, or near enough ₹42,500 a month — a little under that in practice, since the balance falls as principal is repaid. None of it is money the owner keeps. Against that, the owner does keep the principal limb and any change in the flat’s price, while the renter keeps the return on the ₹20 lakh not locked in. Both sides have a limb that is genuinely spent, which is exactly what the myth denies.

Whether owning finishes ahead over a given period depends on the price path of that particular property, and nobody knows it in advance — so this is not a question that resolves into an answer that holds for everyone. What does resolve is the arithmetic: the schedule that splits every instalment into interest and principal comes with every home loan, and the interest column is the number that belongs beside your rent. The related trap — measuring a flat’s return by sale price over sticker price — is the most expensive measurement error in the Indian household.

Myth 6: a tax-saving investment saves everyone tax

Two separate errors are stacked inside this one, and they compound.

The first is arithmetic. A deduction reduces the income the slab is applied to, not the tax. Investing ₹1.5 lakh in an eligible instrument does not save ₹1.5 lakh of tax — it removes that much from taxable income, so the saving is that amount multiplied by your marginal rate. Two taxpayers making the identical investment save different sums, and neither saves the headline figure. The number in the headline is the ceiling on the deduction, not the money you get back.

The second is bigger and newer. That deduction — Income-tax Act 2025 s.123 read with Schedule XV, the provision everyone still calls by its old number — belongs to the old regime, and the new regime is the default (s.202), which does not carry it. A taxpayer who has not opted out of the default and invests to save tax has saved none. The instrument may still be a perfectly reasonable holding; the reason given for buying it has stopped applying. Income for FY26 — the year to 31 March 2026 — is still governed by the repealed 1961 Act, so during the transition it is worth checking which year and which regime any claim you are reading was written for.

Then the cost the pitch never mentions: the lock-in. An equity-linked savings scheme carries a statutory lock-in of three years; each of the other eligible instruments carries a term of its own, which is a number to read off the product rather than assume. A lock-in is not a drawback in itself — it is a price, and it is worth paying only if the instrument is one you would have wanted to hold anyway. Choose a product for its tax label and you inherit its lock-in too, which is how households end up committed for years to something nobody chose on its merits.

The order that survives a rule change is to pick the holding for the job it does, then check what tax treatment follows — which is why which regime you are actually on is the first thing to settle, what the eligible basket contains and what the deduction is actually worth is the question underneath the myth, and what an ELSS is as an equity holding is a question that stands whether or not the deduction applies to you.

Myth 7: an emergency fund is idle money

The complaint is real: money in a savings account or a liquid scheme earns less than a long-horizon holding, and inflation is eating it. Every word of that is true. It measures the fund on the wrong axis.

An emergency fund is not held for its return. It is held so that an unplanned bill does not have to be funded by the two expensive alternatives: borrowing at short notice, or selling a long-horizon asset at whatever price the market happens to be offering that week. The fund’s job is to be the thing that gets spent so that neither of those happens. Its yield is not the measure of whether it worked.

Put numbers on the alternatives, inputs stated. Suppose ₹3 lakh sits at an assumed 6% while your long-horizon holding is assumed to compound at 11%: the fund gives up the 5 percentage points between them, about ₹15,000 a year. Now suppose the same ₹3 lakh has to be borrowed instead, as a two-year personal loan at an assumed 15% — that costs roughly ₹49,000 in interest over the two years, and it arrives all at once, at the worst possible moment, with an instalment attached. The give-up is the premium; the loan is the claim you did not have to make.

Which gives the honest trade-off, because the premium is real and an oversized fund is a genuine cost. Two years of expenses in liquid form is not caution — it is a large, permanent give-up bought against a risk that a smaller sum already covered. The size is a decision with a cost on both sides, which is what sizing an emergency fund is actually about, and it is a separate matter from what inflation does to money held long.

What each myth substitutes for what

Read the seven together and the same defect appears in every one: a quantity that is easy to see standing in for a quantity that decides the outcome.

The last two rows are in the table rather than in sections because the arithmetic of a bundled policy, and of gold held without a stated job, is worked through in full in the money mistakes that cost Indian households most.

So the general test, restated now that there are seven worked instances behind it. When a money claim sounds obviously right, do not argue with the claim. Find the quantity it is true about, and then write down the quantity your decision turns on. Units against rupees. Payment against ownership. Repayment record against income. Instalment size against elapsed years. Rent against non-recoverable cost. Deduction ceiling against marginal rate. Yield against the thing it replaces. In every case the myth is a real measurement of the first, offered as an answer about the second.

That test has a property worth the trouble: it survives rule changes. Rates move every February and the substitution does not.

Checking the two that need a price history

Five of the seven are settled on paper — a nomination form and a will, an amortisation schedule, which regime you are on, an instalment against your own surplus, a fund sized against a month of bills. Two need a long price series rather than your own records.

Whether a lower NAV meant anything is answerable by putting the same rupees into two schemes on the same dates and reading the two ending values. Whether the years really carried the arithmetic in myth 4 is answerable by running the same monthly amount over different start dates and comparing the internal rate of return on cashflows that land on irregular dates — XIRR. FNOTrader’s Mutual Funds app runs both against the NAV history published by AMFI, the mutual fund industry body — around 34 million NAV rows — and reports invested against value, XIRR, and the worst peak-to-trough fall along the way.

Past performance is a record of what happened, not an indication of what will. FNOTrader is not a SEBI-registered investment adviser and does not give investment advice.

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