Have you invested in a mutual fund scheme till date? If not, you are not trendy for sure. You should know the fact that the idea behind most investments is wealth creation over a long period of time. But not many make it to the wealthy end. There are various reasons behind the not so happy ending. As markets remain volatile and do not care about your investments, your own actions sometimes are detrimental to your dreams. Here is a list provided by MoneyMindz, Best On- call Financial Advisory Portal MF investors must avoid ensuring one makes money by investing in mutual fund schemes.
Ignoring your financial goals
It can be the worst thing you can do while investing. You should never forget that you are investing because you have to achieve your financial goals. Investing without a goal is most akin to travelling without a destination.
If one ignores his/her financial goals, they will end up investing in avenues that do not suit your needs. Let take an example, if you have to accumulate Rs 1 lakh to pay for your child’s fees next year, it makes sense to start investing in a recurring deposit every month or put that money in a fixed deposits maturing at a time when you need it. If you invest that money in an equity mutual fund, the market may give you a rude shock.
Such same holds true for long term investments such as retirement. “Never invest that money in a dividend option of a MF. It will not compound as many times investors forget to reinvest dividend income.
Trying to time the market over time in the market
As SIP book is growing there is no dearth of investors who prefer to stand at the other extreme. These are the investors who prefer to time their investments to maximise their returns. Some of them even prefer to sell their investments when the markets appear overpriced. Well it does not work for most of them barring a few lucky folks. Some waits for the markets to correct while others repent as to why they sold at the previous top. It makes sense to keep investing at regular interval and let your money grow over a long period of time.
Investing in too many schemes
One of the most common mistakes investor commits thinking that they are diversifying. They generally tend to forget that each MF scheme has a diversified portfolio of securities. More schemes you will buy, 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. The bull markets further skew the balance in favour of equities. This situation may lead to big losses in case the markets take a U-turn, especially when investors opt for small cap and midcap focussed schemes, as quick falls can evaporate gains earned over months and years.
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 investing. “Systematic transfer plan helps you to invest at regular intervals and optimise your returns.”
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