If you have not yet invested in Mutual Fund, it is high time you do it. The SIP (Systematic Investment Plan) has swollen to Rs.7,300 crore making it a lucrative investment option in India. It is important to understand that investments are done with the sole objective of creating wealth over a period of time.
Despite mutual fund being an excellent wealth creation option, not many investors are usually happy about their investments as they are unable to maximize the benefits. If you really want to reap the benefits of your mutual fund investment then you must avoid a few mistakes.
Here’s 7 mistakes to avoid while Investing in Mutual Funds.
Timing the market: There is no doubt that SIP mutual fund is gaining popularity. However, a few investors prefer to time their investments and wait for a ‘better’ time in the market. While some investors prefer to sell their investments when the market appears overpriced and maximize their returns, others wait till the market prices are even better. However, in doing so, they tend to miss out on the opportunity and repent their decision.
Ignoring financial goals: You need to have a goal before you decide to invest. There is absolutely no point in investing without having a proper goal in mind. You may end up investing in avenues that are irrelevant to you. For instance, say you need to save Rs. 1 lakh for your child’s school fees for the next year then you may either invest in fixed deposits maturing when you need or in a recurring deposit every month. Investing in equity mutual fund in such a case will make no sense at all. Therefore, it is imperative that you invest in schemes according to your financial goal.
Investing in multiple schemes: This is a common mistake most investors make. Investors believe that investing in multiple schemes will help diversify their portfolio. However, it may make it difficult to be tracked and make matters worse. It is recommended that you invest in 2-3 well managed schemes and keep adding to the investments.
High returns: This is yet another common mistake most investors make. Most of them feel that the best way to invest is to choose a mutual fund based on their previous returns. However, this may not be the ideal way to choose a fund because the fund. It is important to understand how the funds function instead of blindly relying on their past performance.
Ignoring asset allocation and risk profiles: Most investors fear loss and therefore avoid high risk profiles. This may not be a great choice as you can miss out on some really good returns. Most investors opt for small cap and mid cap schemes and this may lead to losses when the market takes a u-turn. Quick falls can cause gains to evaporate when the market undergoes losses. It is advisable that you consider risk profiles instead of simply following the crowd.
Investing a lump sum amount: Investing a large amount in equity mutual fund may not be a great idea if you are not very emotionally stable. Slight changes in the market can create problems if you are not able to handle the pressure. To avoid such a problem, it is recommended that you opt for systematic transfers. Systematic investments help you invest at regular intervals and optimize your returns.
Not reviewing on regular basis: There is no doubt that mutual funds are a great way to invest in asset classes such as equity, gold and bonds. Each scheme is governed by a few objectives and each fund manager has his own way to help his investors make money. It is important that you review the performance of your portfolio on a regular basis and weed out under performers. This will also prevent you from any major losses.
To sum up, it can be said that mutual funds when invested in carefully can offer you more benefits. Additionally, a thorough research about the mutual fund you wish to invest in will also help you in a better way.