There are several factors that can go wrong in your investment journey. If you are new to investment world, there are several things you might be apprehensive of. Assuming that you are well-versed with how to invest in mutual funds and why to invest in mutual funds, here are a few common mistakes that might want to avoid before you invest in mutual funds.
- Not paying heed to your financial objectives
This is probably one of the biggest mistakes that you can commit while investing in mutual funds. One should always remember that the basic idea behind investing in to achieve their financial goals. Investing without any aim or goal is similar to travelling without any destination. What’s more, investing without any purpose might lead you to invest in securities that do not align with your portfolio.
- Timing the market
Several investors often make futile attempts to time the market. They do this to maximise their returns on their investments. However, one must understand that one can never truly predict when a market has hit its lowest point. Instead of timing the markets, consider investing time in the market. What it means that, consider making regular investments for a longer duration to flatten out the volatilities associated with equity investments.
- Running after significant returns
Several new investors select their mutual fund schemes on the basis of their past performance. While past performance is a good indicator of the future returns of a scheme, it is not a definitive indicator. A scheme that has performed exceptionally well last year, might produce extremely poor returns in a few years, and vice versa. A better approach would be to compare the performance of the scheme at different market cycles. This will give you a better idea on how the scheme is likely to react under good and bad conditions.
- Ignoring asset allocation strategy and your risk appetite
Investors are often carried away and, in a hurry, to not miss out the ‘perfect opportunity’, they invest in wrong securities. However good an opportunity might seem, an investor must not ignore their risk profile, and invest in securities only that they can stomach the volatilities up to a particular extent. Instead of following the herd, stick to your asset allocation strategy.
- Putting all your eggs in one basket
Experts advise investors time and again to not invest their entire money in a particular type of investment. Instead, you must allocate your funds across different types of investments. This will help to diversify your investment portfolio. Diversifying your portfolio diminishes the risk of loss of your portfolio. Also, it exposes you to much more opportunities. Thus, always diversify your portfolio across sectors and asset class, and location if possible.
You can easily calculate mutual fund returns using a mutual fund calculator. This investment tool help investors to evaluate the future value of their mutual fund investments.