Mutual fund investment has become a popular financial instrument for many people post the push given for investment after demonetization. With the advent of online facility to manage the mutual fund accounts has popularized this instrument, awareness and educational programs too have helped.
One may be well informed about the mutual fund schemes, its features and risks. But there are chances that one might make mistakes when the market is on an upswing. Smart people always learn from the mistakes of others. Want to act smart? Here we have put together some of the common mistakes that are committed by mutual fund investors.
#1. Investing in a plan that produced a good return for someone
This is the common mutual fund mistake that many make while entering mutual fund investments. Someone might have earned a good return from a plan which might tempt you to do the same. Unfortunately, finance does not work that way. Understanding and realising the asset, income, financial goal and age will help you choose the plan that suits your requirement and objective.
#2. Investing in Short-term SIP in Equity Funds
Equity mutual funds generate high returns. However, it comes with greater amount of market risks. Though investing in an SIP in equity funds is a good strategy, the time horizon is an important factor that needs a careful attention. SIPs for a long-term multiplies the returns while a short-term SIP plan can generate hardly any return.
For example, an SIP plan of INR 10,000 would have generated an average return of 11% in three years while it may have been around 19% after five years.
#3. Choosing a plan based on recent performance
Many commit the mistake of choosing a mutual fund investment plan that has displayed a splendid performance recently. One must remember that market conditions could change any time and mutual fund investment is a long-term commitment that needs a careful analysis. A fund that has performed well for over 5 to 10 years could be an ideal plan to pile your investment.
#4. Checking the performance of the mutual fund investment frequently
Most of the beginners, after taking a mutual fund scheme, track the performance of the scheme they have invested. Try to avoid this habit if you have invested in long-term schemes. Market will go through turbulent times and quickly recover when the conditions are favourable. Checking the performance frequently will urge you to take chaotic decisions that will yield no profit to your investment. If you have invested in a long-term equity scheme, just sit back and relax till the investment matures and redeem the plan when market is on an upswing.
#5. Investing without any financial goal
Investing without a goal is also a problem element. Just because, it is reiterated saving is a good habit, many blindly invest their money in a random plan. This could wreck your financial discipline as you have not set priorities. Choose a mutual fund plan whether short or long-term and set a goal associated with it. This will help you manage your finance efficiently and channelize your spending accordingly.
To err is human. But making continuous mistakes on your finance could push you into debts. To avoid such a pressing situation, act wisely to choose your financial plan and stick to it until you get the profit.