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Mistakes to avoid while investing in mutual funds

There are bound to be a few mistakes in the initial phase of a new venture. It is no different with a mutual funds investment. But what if you had a cheat code to avoid these mistakes? This article is merely that -- it points out the mistakes you may make while making a mutual funds investment. Let’s look at some of the common goof-ups.

1) Waiting too long to invest: The best time to invest was 20 years ago. The next best time is now. However, many people avoid taking the first step because they think they don’t have sufficient funds to invest. This is a wrong approach. With mutual funds investment plans, you can start investing with very small sums of money. Even Rs 500 is enough to get started. The power of compounding ensures that even small amounts can grow into larger sums over time. The longer you wait, the more you miss out on the benefits that mutual funds investment basics offer. Start investing early to maximise your financial returns.

 2) Panicking: Warren Buffett, the great investment guru, explains that you should buy low and sell high. However, a common mistake among investors is to panic when the market turns bearish. They dump their equity funds to minimize their losses. In other words, they start investing when the market is at a high and exit when the tide turns the other way. This strategy is the exact opposite of successful investing. It is common for the market to go through bullish and bearish cycles. But that doesn’t mean you react to these short term changes. When you invest for the long term, you should avoid panicking by continuing your regular investments month after month.

 3) Investing without a plan: There are thousands of mutual funds in the market. And each fund is designed to help investors meet specific investment goals. If you invest randomly without a proper financial plan, you can make the mistake of picking the wrong funds in mutual funds and investment for a better future. For instance, equity funds are good for long term goals but for short term goals, it is better to invest in debt funds. By creating a detailed financial plan and investing accordingly, you can meet all your financial goals at the right time.

 4) Not monitoring your funds: Investing is not an exact science. You can do a lot of analysis and pick out the best mutual funds that you hope will perform. But that may not always be the case. It is possible for funds to underperform from time to time. And you can know this only if you keep an eye on your funds. You should monitor your funds on a regular basis to ensure that they are performing up to your expectations. If not, it may be necessary to replace them with better alternatives. But that said don’t scrutinize the performance on a daily basis. The stock market can be volatile and you don’t want to worry about each up and downturn in the market. Have a proper time horizon and monitor accordingly.

 5) Stopping your SIPs: Systematic Investment Plans (SIPs) offer the best returns when you invest consistently on a regular basis. However, many investors wrongly assume that by timing the market and only buying mutual fund units at low prices, they can get higher returns. When you stop your SIP, a smaller amount of money is being invested. It is best to continue your investments to achieve Rupee cost averaging over time.


Conclusion

It is a good idea to invest in mutual funds. But to maximise your returns, it is necessary to avoid some of the common pitfalls. Now that it is clear you know how to avoid while investing in mutual funds, you can successfully create a good corpus to meet your financial goals over time.




Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.