Investing in mutual funds is all the rage these days. Many consumers who used to invest in traditional savings plans like PPF and FDs are now showing an increasing interest in Mutual Funds. Buying Mutual Funds rather than directly investing in shares is a safer and more convenient alternative if you don't have much expertise analysing the stock market. For middle-class Indians, mutual fund investment is a terrific way to fulfil their goals. It may be established with a monthly contribution of as little as Rs 500.
Despite these advantages, many customers, especially beginner investors, make a number of mistakes while investing in mutual funds. We'll go through 10 of the most common mistakes individuals make while investing in mutual funds in this post.
Choosing a variety of methods to maximise your return-
That isn't the how things operate. In the sake of diversification, this is one of the most typical mistakes investors make. While it is crucial to diversify a portfolio when investing in mutual funds, adding too many schemes to a portfolio just adds to the difficulty of keeping track of them.
Investors should ideally select only a few schemes that provide broad market exposure. A successful portfolio may be established with just two or three well-managed schemes that are also simple to follow.
Concentrate on asset allocation-
Many investors put all of their money into one sort of fund to get the most out of one asset. The approach to invest in mutual funds is through asset allocation, which is the proportioning of an individual's investment in various assets. If an investor puts all of his or her money in one location, mutual fund investing becomes a tough game.
Your financial objectives, duration, and risk appetite should all be considered when allocating your assets. When it comes to investing, make sure your portfolio is well-diversified across asset classes including fixed income, stock, gold, and real estate, among others.
Mutual Funds Are Not the Same As Stocks-
Investing in mutual funds just for the sake of trading is a mistake. A mutual fund will never be able to match the returns of a stock, nor will it be able to reduce the risk of significant losses. This is due to the fact that a mutual fund is a stock portfolio created by skilled fund managers after thorough study. Shares are used to split a company's entire capital. A stock in a company implies you own a portion of it, but a mutual fund pools money from different investors and invests it in a range of assets, including shares in other businesses. However, investing in mutual funds does not enable you to become a shareholder in a company. Rather, you'll receive mutual fund units in proportion to the amount you put in. To make an informed investing decision, it's critical to know the difference between mutual funds and common stocks.
Returns are not Guaranteed-
Regardless matter the investment they make, everyone wants to have assured returns. Mutual funds, on the other hand, do not guarantee returns.
Even debt funds, which are thought to be risk-free by many, may not give assured returns on a regular basis. Debt funds are less risky than equity funds, but it doesn't mean they can guarantee you a profit.
Not Checking your Portfolio-
You can lose money if you don't check your portfolio on a regular basis, which most of us don't do. Some investments fail to deliver on their promises, and it is necessary to monitor them on a regular basis in order to avoid them.
Investors should monitor their investments' performance on a regular basis. Investors should aim to analyse all of their mutual fund schemes on a regular basis to prevent stumbling blocks in their long-term wealth growth. This allows for the exclusion of underperforming assets.
When comparing fund performance, many investors make the mistake of comparing apples to oranges. They are only concerned with the amount of return a fund has provided, rather than whether the funds are in the same category or other features of the funds. Comparisons should be made with the appropriate peers and benchmarks.
A small cap fund's performance cannot be compared to that of a large size fund since the two invest in different types of equities.
Better to have a plan with a lower net asset value (NAV)-
Every investor understands that the phrase is "buy cheap, sell high" if they want to make a profit. And it's a principle they strive to apply to all of their investing products. Many investors participate in new fund offerings (NFOs) with the aim of receiving a return as little as INR 10 per unit. They don't realise, however, that the price at which an NFO buys its underlying assets is the same as it is for every other player in the market.
The NAV at which you can purchase mutual fund units is unimportant; what matters is the price at which the fund management purchases the underlying securities.