10 mistakes people make while investing in mutual funds
Mutual Fund investment is the talk of the town. These days, many people who earlier used to invest in the traditional saving schemes like PPF and FD are showing more interest in investing in Mutual Fund.
Ideally, if you don’t have a good knowledge of analyzing the security market, instead of directly investing in stocks, buying through Mutual Funds is a lot safer and more convenient. For the middle-class Indians, Mutual Fund investing is a wonderful way of fulfilling their desired goals. You can even start investing with as low as Rs 500 per month.
Irrespective of these advantages, there are many people- especially novice investors, who make a plethora of mistakes investing in Mutual Funds. In this post, we are going to discuss ten of the most common mistakes while investing in mutual funds.
1. Not defining any goal
You should clearly define your financial goals before you jump into Mutual Funds. One requires specifying his/her short and long term goals before deciding over the investment portfolio. If you are planning to go for a tour abroad after a year from now, investing in a Debt Fund seems more appropriate. On the other if you wish to retire after 30 years from today, you should set up your SIPs in an Equity Fund to have a large corpus in h and during your retirement.
2. Not researching the fund properly before investing
Investing in the financial market makes no sense if you haven’t done proper research. Before investing in a Mutual Fund scheme, you need to know its fund type, exit load, historical returns, asset size, expense ratio, etc. You need to have a clear idea about your own risk-return profile before you invest your savings in some scheme. This can provide you with the necessary guidance regarding making the selection of the right Mutual Fund.
3. Reacting to short term market fluctuations
There are many investors who get scared when the market witnesses a bearish trend. You need to understand and that Mutual Fund investing is basically meant for generating long term wealth. So, you should not react to any sharp correction in the market or short term volatility. Moreover, you should refrain from blindly following the stock market analysts and business channels on television. If you don’t keep yourself away from the noise, your chances of making larger returns from Mutual Funds will decrease.
4. Not having a long-term mindset
People generally invest in the Equity Funds to make huge money. Equity Funds can only generate long term wealth if you stay invested for a substantially long period of time. Many people sell their funds losing their enthusiasm and patience after suffering from short term losses. This doesn’t make any sense if you are aiming for quick money from an Equity Fund scheme.