Mutual funds are a great investment tool for retail investors, irrespective of the fact that they are new investors or experienced ones. When you begin your investment, there are several things that can go wrong. In this article, we will look at certain investment mistakes that can go wrong with your mutual funds investment plans.
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Common mutual fund investment mistakes
Following are a few common mutual fund investment mistakes that you must try to avoid in your investment journey:
- Not taking your financial goals into consideration
This is probably one of the biggest mistakes that you can commit while investing in mutual funds. An investor must always invest in mutual funds after careful consideration of their financial goals. Investing without any ulterior motive is just like sitting in a train with no destination to go. It’s pointless and time-consuming. This could be quite detrimental to your investment portfolio.
- Timing the market
Another common mutual fund investment mistake committed my most investors is attempting to time the markets. Investors wish to time the markets in a hope to maximise the returns on their mutual fund investments. However, one must realise that it is almost next to impossible to properly predict the markets. As a result, it is difficult to say at any point of time that the market has hits its lowest and cannot go further down. Rather than focusing on timing the markets to maximise the returns, you can instead consider time in the market. This means that you should try to stay invested for a longer duration to even out the volatilities of stock market.
- Running after returns
Do not make the mistake of running behind certain mutual fund investment plans solely on their past performance. While past performance of a mutual fund scheme is a good indicator of the future returns, it does not guarantee those returns. A mutual fund scheme which is performing well now might perform the same way in the next couple of years. Instead, you can compare mutual funds against their underlying benchmark and other peers in the same category to understand how your mutual fund scheme is performing against the markets. Also, look at the returns over different market cycles. This will give a better idea about the future returns on your mutual fund investments.
- Ignoring your risk profile
In an attempt to not miss the ‘right opportunity’ to enter the markets or invest in certain securities, several investors make the mistake of being carried away and end up investing in securities that aren’t right for their investment portfolio. Although, one must understand that however good that opportunity might seem currently, one should not ignore their risk profile. Rather than following the herd, you must stick to your asset allocation strategy.
These were just a few common mistakes committed by most mutual fund investors. Just remember to trust your research and invest in mutual funds only after careful analysis of your investment portfolio, risk profile, and financial goals. You can also use a mutual fund return calculator mutual fund returns or to evaluate the expected value of your investments in the future. Happy investing!