Mutual Fund Mistakes to Avoid – Part 2

The need to invest money rather than just save it is to create wealth. Wealth gets created only over a long time period. People invest in mutual funds to grow their wealth faster. However, not all those who invest in mutual funds make it to creating that targeted wealth. Avoid making these mistakes when investing in mutual funds so that you can create and grow your wealth as aimed.

Forgetting your financial goals

Always remember that that you are investing to achieve your financial goals. Investing just for the sake of it without having any goal might prove useless. This is because if you do not plan or if you invest your money forgetting your financial goals, you might end up investing in options that do not satisfy your needs. Let’s say that you want to accumulate a small corpus of money for your child’s education fee for next year. It would make sense only if you saving for that goal in a fixed deposit or recurring deposit so that you can get the exact amount when you need it. However, if you invest for this goal in mutual funds, there are chances that you might not get the required amount due to market fluctuations as mutual fund investments give you good returns only after 3-5 years.

Not sticking to your risk profile

Some people get carried away and invest in risky equity funds due to peer pressure. They completely forget to stick to their risk profile and switch from moderate to high risk profile. This might lead to some big losses if the markets take a reverse turn. Investors should always stick to their risk profile and not go with what their friends or family invest in.

Investing in a lot of different funds

One of the common mistake that most people make is to buy/ invest in a lot of different funds thinking that this the way to diversify and balance their portfolio. You should remember that each of the mutual fund scheme has diversified portfolio of securities. When you keep buying more funds, it becomes difficult to keep track of your investment and analyze them regularly. It is better to invest in 3-well managed funds and keep investing in them regularly.

Don’t just rely on past numbers

Many investors choose a MF scheme based on the historical high returns of that scheme. However, this might not always work as one might expect. Let’s say that you chose a MF by the end of 2016 based on the history of that debt fund with high returns. That fund would have performed really badly for the next 1.5 years.  This is because before 2016 interest rates were falling and so the returns were high and the interest rates increased after 2017. So, you must first understand how mutual funds work and not just choose a fund based on its past numbers.

Investing by timing the market

Some people buy/ invest and sell their investments by timing the market so that they can maximize the returns. However, it does not work exactly as planned most of the times except for some people. Unless you are well experienced with the market and have the time to keep yourself regularly updated, it is best only to make regular monthly or quarterly investments to help your wealth grow over a period of time. SIPs are the best option for this and one must make sure to stay invested for long term.

Investing a huge amount in one shot

Even for people who are well into the stock market, unexpected losses are inevitable. Market is always volatile. Since mutual fund investments are also depended on the market, it is not wise to invest a huge amount of money or all your money in mutual funds at one shot, especially in equity. If he market goes haywire, then you might stand to face huge loss and most people might not be able to handle it well emotionally. It is best to stick to a regular investment plan where you can keep investing a reasonable amount of money at regular intervals and stay invested for a long period of time.

Not keeping track

It is not enough if you just keep investing in mutual funds, you should also keep reviewing your portfolio regularly. You should keep a track of the how each fund in your portfolio is performing and if you find any fund not doing good, then you have to stop investing in that fund to limit your loss. If you fail to review your mutual fund investments periodically, you can end up in a big loss.

As there are many variables and too many facts to consider while investing in mutual funds, it is a good idea to get help from an agent not just before investing but also to handle your investments on a regular basis. It never hurts to get some extra help when it is available to create that wealth that you need.

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About the Author: Maithreyi

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