If you have not invested in a mutual fund (MF) scheme to date, you are not trendy for sure. The idea behind most investments is wealth creation over a long period of time. However, not many make it to the wealthy end. There are several reasons behind the not so happy ending. While markets remain volatile and do not care about your investments, your own actions sometimes are detrimental to your dreams. Here is a list of mistakes MF investors must avoid ensuring one makes money by investing in mutual fund schemes.
Ignoring your financial goals
This should be the worst thing you can do while investing. Never forget that you are investing because you have to achieve your financial goals. Investing without a goal is akin to travelling without a destination.
Trying to time the market over time in the market
It makes sense to keep investing at regular interval and let your money grow over a long period of time.
Chasing high returns
For many first time investors, the best way to choose MF schemes is to sort them based on their historical returns. However, it may not be the best way to do so. One needs to understand how mutual fund schemes work and not just rely on past numbers.
Investing in too many schemes
This is one of the most common mistakes investors commit to thinking that they are diversifying. They tend to forget that each MF scheme has a diversified portfolio of securities. The more schemes you buy, the more difficult it becomes to keep a track of them.
Ignoring risk profile and asset allocation
This is pertinent in heady markets. Investors get carried away and suffer from the fear of missing out. In a bull market, investors with moderate risk-taking ability come under peer pressure, ignore their risk profile and invest in risky avenues such as equity funds.
Investing all your money at one go
Investing large sums in equity MFs is a tricky game. Not many investors can handle the situation emotionally. The best way to avoid it is to write all cheques and sign all the forms in one go or click wherever required at one go. However, this is not the best method. You are exposing yourself to timing risk. It makes sense to take a staggered approach to invest.
Mutual funds are vehicles to invest in various asset classes such as gold, equity and bonds. Each fund manager has his way of making money for his investors and is governed by the scheme’s objective. The investors are expected to keep a track of his scheme’s performance from time to time. It makes sense to conduct a periodical review of all your MF schemes and weed out underperformers, if any. Failing to review can cost you a fortune.
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