The MOST common mistakes that Mutual Fund Investors commit
by Ajit B. Consultant
Mutual fund investing is a complex task and investors usually make mistakes in it. There can be many reasons for these mistakes such as lack of adequate knowledge about mutual fund investment, not planning properly and the burden of responsibilities for some. Nevertheless, the family is involved in building a wealth fund and meeting all the major life goals. It is very important to invest in mutual funds to provide for. While investing in mutual funds, gather information and invest thoughtfully. Do not be hasty, there will be mistakes inadvertently.
The MOST common mistakes that Mutual Fund Investors commit
Setting Unrealistic Expectations
Setting unrealistic expectations topped the list of mistakes for starting a mutual fund investment. Investors consider their money, energy and time to be unattractive when investing in mutual funds and believe that mutual funds are a money machine that generate money without any downside. When the market collapses and there is some bloodshed, the reality comes out which can upset any investor. As an investor, you should understand that mutual funds are subject to market movements.
Unspecified investment goals
It may be that in the beginning you do not have an accurate idea of your goal and you start investing with a vague idea but it should not continue like this. You set appropriate life goals, for which you are invested in a well-planned approach and a well-diversified portfolio. If your objectives are not set, then you are making the most unplanned investment that will eventually lead to a shortage of funds and a debt forehead load.
Portfolio diversification is just as essential for mutual fund portfolios as purification for humans these days. Without a water purifier, you will also be consuming polluted and harmful substances. Likewise, when you invest in mutual funds and stick to a particular sector or particular fund type, you are on the verge of a breakout because even the slightest fall in the market can have a greater impact on your portfolio due to concentration.By diversifying your portfolio in different sectors, you can invest in different sectors, different companies and even different countries. In this way you are protecting your portfolio from any systematic risk in a particular area.
This is in contrast to the previous point, the diversified portfolio is one that is very spread across different domains, sectors or so. The essence of diversification is to have 5 or 6 funds from different sectors to balance risk and volatility from your portfolio, but higher amounts mean that you invest more and more. The essence of diversification lies in investing in areas such as telecom, medicine, automobile, IT, FMCG, etc.
Decision based on short term performance
Trends in investment markets change from time to time. The investment market functions in cycles that are full of ups and downs. Therefore, a temporary phase of decline is unavoidable but it is not prudent to base your investment decisions on these short-term trends of the market. Similarly, you should not judge the fund to boost your outright high returns or the overall industry. When you plan to invest in a mutual fund and stay here to invest for a longer period, the fund’s long-term performance as well as the company’s decision will be based on your decision, so that you will be able to see the company’s strategy, There will be deep insight into dividend policy and shared performance.
Frequent Fund Trading or switching
Remain invested in mutual funds and let the money grow. Investors lose the majority of their potential money due to temporary market fluctuations and unplanned redemption and investments.Keep yourself updated .
When investment motto is Tax saving only.
Investing in mutual funds is an important reason for investors due to its benefits under Section 80C of the Income Tax Savings Act 1961, but should not be the sole reason for it. Focusing your portfolio on funds that are tax-friendly can hinder the overall growth of your portfolio. If the investment is planned according to you and not focused only on the tax-saving portion, your portfolio may be able to deliver higher returns.
No Periodic portfolio review
Once you invest in your chosen mutual fund, it is important that you expect higher returns from all of them after much speculation. Nevertheless, there may be some under performers in your portfolio. You should keep in touch with your investment portfolio and come back twice a year to make sure there are no under performers who are eating up all of your build-up. If you happen to find something, it is important that you use this kind of fund.
This is often a major mistake if investors miss out on inflation while planning an investment. Inflation is considered as a silent currency eater that depends on your profits. With the current scenario prevailing, inflation is 6% which means that 6% of your money has gone into inflation. If you move past a few years or calculate past trends, inflation has almost balanced the earned profit of people. Therefore, it is important that you invest in mutual funds that are inflation-proof or provide returns that are inflation-adjusted.
Most of the time a investor’s investment decisions are influenced by their family or friends. Or maybe when your mother is scolding to spend for whatever you are earning and then slide into the idea of how Mishraji’s son is saving so much in a special fund? This happens at the exact moment when your emotions follow you and you fall prey to the investment marketing strategy. Never invest in a mutual fund. It should be happy or sad when you are stronger than your feelings. Emotional investing can prove to be extremely detrimental to the health of your portfolio and can swallow all your profits.
Make sure that you have crossed all these points before investing in mutual funds.
Created on Jul 16th 2020 07:45. Viewed 185 times.