Hello Readers!
Have you all started your investment in mutual funds or still planning? Well, it's your choice and needs, when do you start your investment.
Mutual fund investment is gaining its popularity among the investors, in the past some years, due to its good yielding returns, different kinds of investments schemes, and easy to monitor characteristics. Moreover, the SIP (Systematic Investment Plan) feature of mutual fund investment has connected people from every section of society, from middle and small also.
With the increase of mutual fund investors, common mistakes done by mutual fund investors are also increasing. People do get fascinated by its return calculation, and start their investment, without knowing the key points of mutual fund investments, without knowing about the risk associated with the funds.
Ultimately what happens, they end with a loss or didn’t receive the calculated return on their fund. It is always said, that ‘mutual funds are subject to market risk, kindly read all the scheme related documents carefully’ but people often skip this step, and start their investment, that is not good.
Well if you have also skipped this step, then don’t worry, you can still regulate your mutual fund investment property, you only need to read this blog. Through this blog, we are going to tell, you about the common mistakes committed by mutual fund investors, and how to avoid those mistakes.
If you have not started your investment yet, you are also recommended to avoid these mistakes while investing.
The common mistakes done by mutual fund investors are:
1. Investing but Without Investment Goal:
Many people start investing in mutual funds, only because their friend, their family member or some of their relative has benefitted from mutual fund investment, but dear just tell me one thing will you take science stream, just because your cousin is a doctor, or you will take science stream, because your aim is to be a doctor.
Similarly, others benefit from an investment plan need not be your parameter to start your investment, rather your objective or your investment goal decides when to start your investment. Always set a goal and start investing.
Your investment goal not only decides your step towards investing but also decides your investment tenure.
2. Focusing Too Much on Returns and Ignoring the Risk:
There is no doubt, people do get attracted by the return calculation on the mutual fund schemes, shown by the brokers or agents, but they do forget that they are an estimate calculation and not exact. Investment in mutual funds are subject to market risk and its returns are affected by market performance, and investors do need to deal with the risks also. Ignorance of risks associated with mutual funds, often lessen the calculated returns, sometimes improper management of risk leads the investor on the path of loss.
So, be happy with the returns on your investment, but give some time to risk management also, either risk on your funds will digest your returns.
3. Timing the Market with SIP or Lump-Sum:
Timing the market to know its lowest value and then investing through SIP or lump-sum, is a good idea, and this very thing is known as active management, which a difficult task to do. It is also, true that active management, doesn’t help always, rather your investment tenure help. In SIP investment, time matters more than timing, better focus on discipline and regular investment and wealth creation will follow.
4. Do Not Forget ‘Patience’ Is the Key to Success in Mutual Funds:
Getting afraid from markets down performance, redeeming funds and getting low returns, and then cursing the mutual fund investment, is a common thing investors do, but this is not the actual thing. People before investing, are always advised to analyze their risk capability, and then select the fund accordingly to invest. People often ignore their risk profile while investing, and then get frightened when their fund performs low. In haste they redeem their fund and receive a very low return, sometimes go into loss.
So, before your investment, analyze your risk managing capability, and try to hold your patience, at markets worse, it will not remain the same, definitely, it will flourish.
5. Redeeming Your Funds in Bear Market:
This is one of the foolish mistakes committed by some mutual fund investors. It's completely okay if your fund is not performing well, this is due to bad market conditions, once the market flourishes your fund will perform good but redeeming your fund in a bear market is not a wise decision. If you think you are losing your money stop investing or either transfer your investment to another fund, and wait to redeem till you get good returns. If redeemed hastily or under influence of beer market condition then either you will not receive the expected return, or maybe you will get a loss.
6. Diversification Is Good but Over-Diversification Is Not Good:
Diversification is all about risk reduction and must be done intelligently. If you add the same kind of assets then you are doing risk substitution, not risk reduction. Always invest in different kinds of schemes, like divide your investment amount in parts, invest some parts in Equity funds, and some part in Debt funds. In Equity funds, you can further diversify your investment in sub-categories like Large-Cap, mid-cap, small-cap and many more.
7. Take the Help of a Financial Adviser!
You may have heard many times, direct plans are low-cost funds, with low expense ratio, and yield good returns, compared to a regular plan. As an investor, don't try to do everything yourself, because sometimes in the urge to save costs, you may lose the valuable guidance from your financial adviser, seek customized advice from your financial adviser, and add a little more benefit to your investment, it is always better, than trusting the Robo apps.
8. Focusing Too Much on Equity Funds:
People are mainly focused on Equity funds, even for their short-term goals also. Mutual funds are not confined to equity funds only, rather people do have a wide choice that includes debt funds, balanced funds, liquid funds, gold funds, etc. Investing in debt funds is a good option for those who have short-term goals. Moreover, equity funds do have sub-categories, like large-cap, mid-cap, small-cap and many more, people with long-term goals can diversify their portfolio, with these funds.
If any investor commits any of the above-described mistakes, they move their investment on the path of low return or loss. Being a smart investor, people should always try their best to avoid these mistakes. Avoiding these mistakes will help them to achieve maximum return from their investment.
As of now, you are aware of the common mistakes done by a mutual fund investor, so if you are investing avoid these mistakes, and if you are planning to invest, then also avoid these mistakes while investing in mutual funds.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).