Your cousin is wrong. It is possible to lose more fat than muscle if you do it properly by managing your diet and exercising.
Note that managing your diet isnt the same thing as dieting. Drastic cuts in your daily calorie intake WILL make you lose muscle and ultimately put more fat on, and just limiting yourself to a few foods (e.g. the "Potato and Orange Juice" diet) is stupid.
Go to the nutrition section here and learn what foods to eat in a balanced diet as well as general information about fat loss and healthy nutrition. Start counting your calories aswell. FitDay - Free Weight Loss and Diet Journal is a good site to log them.
Read around the training section and learn how to put together a program to reach your goals.
Though you will lose SOME muscle, the majority of your loss will be fat if you do it right.



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