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Mistakes to Avoid While Investment in Mutual Funds

  • August 13, 2021
  • 5 min read
Mistakes to Avoid While Investment in Mutual Funds

In recent times, the popularity of mutual funds has increased due to many reasons. The first and foremost is its ability to make it easier for a common man to invest in the surging stock markets that were only accessible to wealthy people and stock investors. Today, even people can start a SIP with just 500 Rupees per month. For those who haven’t started Investmentin mutual funds, it can be considered a big loss. 

This is certainly a bigger and promising step for people towards a steady and happy future. At a time when the entire mutual funds market has increased to Rs 7,300 crore, there is no point in declining the fact that mutual funds come with easy saving schemes along with attractive returns on the invested amount. Despite this, many people claim that they didn’t get the desired results from their investment in mutual funds.

According to the top stock brokers in India, mutual funds are primarily beneficial to most of the population but investors sometimes commit some mistakes that ultimately degrade the final outcome. Whether you are looking to invest in mutual funds or already invested some amount in the same, it is necessary to have some knowledge about the most commonly done mistakes that affect the overall performance of the mutual fund investments. So, here are 7 most commonly done mistakes by investors during investment in mutual funds:

  1. Following high returns

For a large number of first time investors, the most preferred way to pickmutual fund schemes is to filter them on the basis of their historical returns. However, it may not be the most appropriate way to do so. For instance, if you have attempted choosing a debt fund in January2016given its historic returns, you would have surelychosen a long-term gilt fund. In the next 12 to 15 months, you would have suffered a loss due to two reasons: 1) Previous returns were the results of reducing interest rates; and 2) Interest rates surged up in 2017 and 2018. It is necessary for the investors to understand the working of various mutual fund schemes and not just dependent on historicfigures.

  • Investing all your amount in one attempt

Investing huge amounts in equity MFs is full of tricks. Not many investors can manage the scenarioon an emotional front. The most sought-after way to avoid it is to prepare all cheques and sign all the documents in one attempt or check all the boxes in one go. However, this is not the right way to move forward. This tends to expose yourself to the risk of timing. It is completely logical to take a stunned approach to mf investment.

  • Ignoring risk profile

This is relevant in strong market scenarios. Investors get swayed and grieve from the threat of getting missed. In case of a bull market, investors with reasonable risk handling ability come under heavy pressure, disregard their risk profile and put their money in high-risk avenues like equity funds. The bull markets additionally slants the balance in favor of equities. This scenario may cause major losses if the markets behave opposite, particularly when investors choosesmall cap and midcap basedplans, as rapid drips can wipe outearnings gained over a period of time.

  • No examination

Mutual fund investment comes in a variety of categories such as equity, bonds, and gold. It mainly depends on the investment manage to choose a specific way of investing in the market which may be reliant on the scheme’s objective. It is suggested for the investors to keep a check on the scheme’s performance at regular intervals. The best way is to carry out a periodical check of all the underlying MF schemes and emit non-performers. This would help you not only save your money but also increase the chances of making gains.

  • Investing in multiple schemes

This is another most commonly done mistakes by new mutual fund investors just for the sake of diversification. This strategy is inappropriate as each mutual fund feature a scattered collection of securities. The more schemes an investor invests in, the more difficult would be for him to keep a track of the same. Rather, have a portfolio of 2-3 good schemes and build on that.

  • Overcoming financial objectives

For every investors, there remains a financial goal like preparing for retirement, daughter’s wedding, buying a car, or anything else. All the investments are made keeping that goal in mind. However, most investors ignore their financial objectives and end up investing in places that do not support their goals.

The selection of a particular mutual scheme also depends on the financial objective behind the investment. So, take every step towards mutual funds investment keep your core objective in mind.

  • Investing with short-term time horizon

Every mf investment advisor or the best stock broker in India will tell ask investors to invest with a long-term scope, except the investor is particularly looking for a fund available within a fixed period. Long term investments grow considerably due to the power of compounding. Equity Mutual funds are great for long-term investments and therefore it is advised to hold the investment for a minimum of five years or more to garner optimum maximum benefits from the investments.

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