Article

If You Are investing In Mutual Funds, Here’s What You Should Avoid

03 Nov 2016 Divya Nair

While every mutual fund investor is advised what he/she needs to know while investing, it is equally important to know what they must NOT do when investing in mutual funds. By and large, appropriate asset allocation and fund selection, effective diversification etc. are some of the fundamental goals that every investor look for in a portfolio. To attain these goals, investors are prone to making several mistakes. This article discusses the most common yet repeated mistakes committed by investors.

Take A Note Of The Following Mistakes while Investing In Mutual Funds

1. Investing For Short-Term:

Investing for long-term averages any possible short-term losses. Long-term investments are the best to follow as it usually give better results. One should however keep reviewing ones investments. Investors should define long-term financial goals and attach each goal to one mutual fund and keep on investing till they reach that goal.

2. Chasing Past Performance:

A funds performance in the past does not guarantee its future performance. While past performance can help narrow chances of selecting non-performing funds, it should not be the only reason to choose a particular mutual fund.

3. Getting Tempted By Higher Returns:

Usually, companies which have good credit ratings offer lower interest rates. On the other hand, companies which have low credit ratings usually offer higher interest rates. A lot of investors pick low-rated debt securities to receive higher interest rates. But the fact is the main objective of debt instruments is to get regular income with safety of investments.

4. Not Going For Open-Ended Mutual Funds

New investors can join open-ended schemes by applying directly to the mutual fund at applicable net asset value (NAV) related prices. Open-ended schemes can issue and return units any time during the life of the scheme. Close-ended funds do not have these features.

5. Not Looking At Risks Associated:

While selecting mutual funds for investments, most of the investors focus on only returns and overlook the risks associated with the selection. Since no investment is devoid of market risk, it is important to identify the risks related to one’s selection. Realizing the importance of getting investors’ risk profiling done, 5paisa.com has launched “Auto Investor”. It is an intelligent advisor that understands customer behavior, their risk profile, individual preference, investment period and many other factors.

7. Investing In Many Mutual Funds:

Some people invest in 10-15 mutual funds and later fail to manage their portfolio accurately. The selection of mutual funds depends on your risk appetite and the time horizon you are going to invest. It is a safer approach to diversify investments into not more than 5 mutual funds. That apart, the number of mutual funds should be manageable and investors must review them once in 6 months at least.

Conclusion - Committing mistakes while investing is very much a part of learning process. Even the smartest investors are prone to make mistakes and often chew bitter pills later in their investment journey. However, knowledge of the above explained common mutual fund investing errors can help you minimize your losses and help you choose the best funds.

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If You Are investing In Mutual Funds, Here’s What You Should Avoid

03 Nov 2016 Divya Nair

While every mutual fund investor is advised what he/she needs to know while investing, it is equally important to know what they must NOT do when investing in mutual funds. By and large, appropriate asset allocation and fund selection, effective diversification etc. are some of the fundamental goals that every investor look for in a portfolio. To attain these goals, investors are prone to making several mistakes. This article discusses the most common yet repeated mistakes committed by investors.

Take A Note Of The Following Mistakes while Investing In Mutual Funds

1. Investing For Short-Term:

Investing for long-term averages any possible short-term losses. Long-term investments are the best to follow as it usually give better results. One should however keep reviewing ones investments. Investors should define long-term financial goals and attach each goal to one mutual fund and keep on investing till they reach that goal.

2. Chasing Past Performance:

A funds performance in the past does not guarantee its future performance. While past performance can help narrow chances of selecting non-performing funds, it should not be the only reason to choose a particular mutual fund.

3. Getting Tempted By Higher Returns:

Usually, companies which have good credit ratings offer lower interest rates. On the other hand, companies which have low credit ratings usually offer higher interest rates. A lot of investors pick low-rated debt securities to receive higher interest rates. But the fact is the main objective of debt instruments is to get regular income with safety of investments.

4. Not Going For Open-Ended Mutual Funds

New investors can join open-ended schemes by applying directly to the mutual fund at applicable net asset value (NAV) related prices. Open-ended schemes can issue and return units any time during the life of the scheme. Close-ended funds do not have these features.

5. Not Looking At Risks Associated:

While selecting mutual funds for investments, most of the investors focus on only returns and overlook the risks associated with the selection. Since no investment is devoid of market risk, it is important to identify the risks related to one’s selection. Realizing the importance of getting investors’ risk profiling done, 5paisa.com has launched “Auto Investor”. It is an intelligent advisor that understands customer behavior, their risk profile, individual preference, investment period and many other factors.

7. Investing In Many Mutual Funds:

Some people invest in 10-15 mutual funds and later fail to manage their portfolio accurately. The selection of mutual funds depends on your risk appetite and the time horizon you are going to invest. It is a safer approach to diversify investments into not more than 5 mutual funds. That apart, the number of mutual funds should be manageable and investors must review them once in 6 months at least.

Conclusion - Committing mistakes while investing is very much a part of learning process. Even the smartest investors are prone to make mistakes and often chew bitter pills later in their investment journey. However, knowledge of the above explained common mutual fund investing errors can help you minimize your losses and help you choose the best funds.