Avoid These Mistakes When Investing in Mutual Funds
Avoid These Mistakes when Investing in Mutual Funds
Financial awareness has increased among people. They have started investing in mutual funds to build a strong portfolio and fulfill their investment goals. Mutual funds allow you to diversify your portfolio and earn high returns on investment. If you are good at studying markets, then it's better to invest in mutual funds than buying stocks. You can start investing in mutual funds with as low as ₹500 of monthly SIP.
Common Mistakes Made by Mutual Fund Investors
Different Mutual fund schemes carry different investment objectives. It has been found that people invest in mutual funds without considering their goals. This mistake shall be avoided. For long-term goals like retirement planning, child education, etc., an investor shall invest in equity mutual funds. On the other hand, for short-term goals like buying a car or planning a vacation, an investor can invest in debt mutual funds.
It has been found that people invest in mutual funds without doing any research. Proper research is very necessary before investing in mutual funds. You shall know the fund type, exit load, lock-in period, historical returns, etc., of the scheme well in advance. If you don't do proper research, then you may buy or sell the mutual funds at inappropriate prices. So, research is very necessary. Use authenticated sources for research.
Each investor has his/her own risk-taking capacity. Some can take high risks, whereas some are risk-averse. It has been found that investors at times invest in schemes without considering their risk appetite and later on face loss from investment. Understand the scheme properly before investing. Debt funds are advisable for risk-averse investors. Whereas investors who are ready to take high risks to earn high returns can invest in equity mutual funds.
Some people invest all their savings in a single mutual fund scheme. And then when an emergency arises, they have to redeem this mutual fund and affect their investment goal. So, before you start investing in mutual fund schemes to achieve goals, you shall plan an emergency fund. The emergency fund will help you to deal with unexpected emergencies. An emergency fund can be created by setting aside a fixed amount every month. This can be kept in bank FDs or liquid mutual funds.
After you invest your money in mutual funds, it's also necessary to review them at periodic intervals. Through this, you can achieve your investment goals. If periodic evaluation is not done, your mutual fund portfolio may not be worthy enough to give good returns.
At times it has been found that an investor puts all his money in a single mutual fund scheme. This is not a good idea. Because if the fund doesn't perform well, then you would face a huge loss. Instead of this, try to have a diversified portfolio. So, to have a good amount of return, you need to invest your money in different mutual fund schemes. This will reduce your overall risk.
Diversification is necessary to reduce the overall risk and earn higher returns. But it doesn't mean that you need to invest in too many funds. An investor at times makes this mistake. Investing in too many funds will over-diversify your portfolio. So, in order to diversify the risk, it would be advisable to divide the investment into a few funds.
Investors at times react to market fluctuations and redeem their mutual funds. This is not good for your finances. You need to understand that investing in mutual funds is a long-term game. So, stop reacting to short-term market fluctuations. Also, you shall avoid blindly following the stock market experts and business news channels. They at times affect your decisions negatively.
If you have a good understanding of finances, then you can plan your investments. But if you are not good at managing finances, then it's better to take the help of a financial advisor. A financial advisor will guide you to select the right mutual fund and fulfill your investment goals.
Some people keep on waiting for the perfect time to start investments. You need to understand that it's not possible to time the market for anyone. So instead of waiting for the perfect time, you shall start investing right now.
- Investing without any Goal
- No Research
- Avoiding Risk Appetite
- No Emergency Fund
- No Review of Investments
- No Diversification
- Investing in a Lot of Funds
- Affected by Short-term Fluctuations
- Not Consulting Financial Advisors
- Delaying Investments
Conclusion
People make some common mistakes while investing in mutual funds. If they avoid these mistakes, then they can earn higher returns and achieve their financial goals. After investing in a mutual fund scheme, wait for sufficient time to earn good returns.
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