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4 Mistakes People should avoid while investing in Mutual Funds


Presently, Mutual Funds are gaining increasing importance of investors in India due to the fact that they are easy to handle and operate and at the same time, the return they have to offer. This is a financial instrument which has proven to be suitable for investors of all kinds, ranging small to large. If you are one of them, in that case, investing in a mutual fund would be a good idea as you have the scope of investing through SIP or Systematic Investment Plan, that starts from Rs 500 and can go up to an infinite amount, on a monthly, quarterly or yearly basis. You also have the option of choosing for, debt fund, balanced funds and equity funds, which invest in debt, equity and both in debt and equity respectively. As far as the gain from these investments is concerned, they can be significantly higher. However, if you make any mistakes, you can find yourself in a state of disarray.

In the following section, you will be offered a brief insight into some of the common mistakes that are made by people while investing in mutual funds



Mistakes you need to Avoid

The process of investing in popular mutual funds like HDFC MF calls for a lot of planning, research. You need to make sure where to invest, what the best time to invest is and most importantly, you need to have a very clear idea about the results that you expect. Even the slightest of mistakes can lead to serious problems. Here are some of the mistakes which people usually make while investing in mutual funds. You need to avoid them
  • Never Invest without a Financial Goal: When it comes to investing in any sort of instrument, whether it is mutual funds or stock, you need to have a very clear idea about the financial goal that you want to achieve and the investments should be made in accordance to it. Unfortunately, in India, most of the investors are not driven by financial goals but by their relatives and friends. This invariably results in making wrong decisions which lead to significant monetary loss. Therefore, it is very important for you to have a set goal in your mind, and then take the necessary steps to allocate your finances. For example, you are planning to create a fund which you can use for the education of your child. In this case, the best option for you would be to start with the SIPs of other funds for accumulating a considerable amount of money, which will come handy by the time your child completes his graduation and ready for higher studies. However, it is important to make sure that funds are picked based on its existing performance and returns
  • Never Invest without Budget: You need to make sure that you never invest in mutual funds without having a clear idea about the budget which you can afford. If you are investing without a budget, in that case, it can cause serious damage to your financial position. You need to prepare a detailed plan when it comes to mutual fund investments after considering certain important aspects like monthly income and expenditure. When it comes to mutual funds, you have the options of using gifts or annual bonuses apart from your monthly salaries. As far as the savings are concerned, that depends on the pattern of earning and spending of individuals. There are some who find it quite difficult to save even 10% of their earning; on the other hand, there are people who can manage to save as much as 50% of their earnings. Therefore, before making any investment in the mutual funds, you need to have a very clear idea about the pattern and level of your savings
  • Always take Risk Profile into Consideration: More often than not, people get carried away by the returns that are being offered by mutual funds and make an investment of considerable amounts without properly assessing the risk profile. Suppose you are someone who is reluctant to take any sort of risk, in that case, investing in equity funds is not the best option for you. As far as equity funds are concerned, they are quite volatile. For you, the best option would be to invest in debt funds and then harvest the benefits. Besides, it is also important for you to know as to when you would require the fund. Suppose you don’t need the money within next 5 years, in that case, you can opt for equity funds; however, if you require it within that span of time, then you should go for debt funds

  • Never Invest in Too Many Funds: It has been a common practice among the investors to invest in multiple different funds at the same time, for the purpose of diversifying the risk. But what they fail to understand is the fact that when it comes to an individual fund, it is designed for diversifying the risk by investing in different securities like bonds, stocks and etc. By investing in too many funds at the same time, the risk is not necessarily being diversified. If the idea is to diversify the risk, in that case, when it comes to a fund whose performance is not up to the mark, in that case, the best option would be to divide the investments into few funds. If large numbers of funds are being invested in, in that case, there is a risk of dealing with funds that may be underperforming; this can result in poor returns. Besides, when invested in a large number of funds, there is a chance of deducting multiple SIPs. The investor might find himself in a situation, where he doesn’t have sufficient balance to pay the SIPs on due dates. The payment of SIPs can be managed efficiently by picking fewer funds

These are some of the most common mistakes that people make while investing in mutual funds. If you are planning to invest, in that case, you need to make sure that you have taken care of all these different aspects. You need to remember, that you can expect a considerable amount of return, only when you have invested in the right place and you have your financial objectives in place. Everything has to be planned and strategized properly in order to get the best of results.

If you are new to this domain and not too sure how to go about it, in that case, get in touch with a financial advisor. He will help you out in every possible aspect and would educate you on various important issues about mutual fund investment that you need to know

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