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10 Common Mistakes Investors make While Investing in Mutual Funds

Many people who previously invested in traditional savings schemes such as PPF and FD are now interested in investing in Mutual Funds. Mutual funds are far more secure and convenient. Mutual Fund investing is an excellent way for middle-class Indians to achieve their desired outcomes. Regardless of these benefits, many people, particularly novice investors, make a slew of mistakes when investing in mutual funds. Here are some of the Mutual Funds Investing mistakes made by investors:

  • Absence of defined goals:

Before investing in the best Mutual Funds in India, you should clearly define your financial objectives. Before deciding on an investment portfolio, one must first define his or her short and long-term objectives. If you intend to travel abroad in a year’s time, investing in a Debt Fund appears to be a better option. If, on the other hand, you want to retire in 30 years, you should start SIPs in an Equity Fund now so that you have a large corpus in hand when you retire.

  • Not Conducting Thorough Research on the Fund Before Investing:

Investing in the financial market makes no sense unless you conduct thorough research. Before investing in a Mutual Fund scheme, you should be aware of the fund’s fund type, exit load, historical returns, asset size, expense ratio, and so on. Before you invest your savings in a scheme, you should have a good understanding of your own risk-return profile.

  • Reacting to Market Fluctuations in the Short Term

Many investors become concerned when the market exhibits a bearish trend. You must understand that Mutual Fund investment is primarily intended to generate long-term wealth. As a result, you should not react to any sharp market corrections or short-term volatility. Furthermore, you should avoid blindly following stock market analysts and business channels on television. If you don’t stay away from the noise, your chances of making larger returns from Mutual Funds will be reduced.

  • Lack of a Long-Term Perspective:

People generally invest in equity funds in order to make a lot of money. Equity funds can only generate long-term wealth if you invest for an extended period of time. After suffering short-term losses, many people sell their funds, losing their enthusiasm and patience. This makes no sense if you want to make quick money with an Equity Fund scheme.

  • Waiting for the Right Moment to Invest:

When it comes to investing, you should never consider market timing. Timing the market is important only if you want to trade rather than invest. Over a long period of time, the market goes through several ups and downs in order to get from point A to point B.

  • Lack of an Emergency Fund:

Many investors put their entire savings into Mutual Funds all at once. As a result, it goes without saying that they do not have enough money to cover unexpected expenses. As a result, they have no choice but to redeem their units and pay exit load in order to cover such expenses. Exit load is the charge levied by a mutual fund company when you redeem the units before a specific time period.

  • Inadequate Investment:

In the case of mutual funds, you should increase your SIPs in proportion to your income growth. Many investors are unaware of the significance of this. As a result, their SIPs remain constant over time, failing to generate the desired wealth in the long run. Furthermore, the rate of inflation rises over time. As a result, in order to achieve the desired corpus, one should gradually increase his/her SIPs.

  • The Dividend Fund Dilemma:

Many people are aware of mutual funds risks and prefer to invest in dividend-paying mutual funds. It should be noted that dividends from mutual funds are paid to investors from the fund’s AUM. As a result, the NAV of such Mutual Fund’s units falls. Mutual funds work best when you invest for a long period of time and allow the power of compounding to work for you. So, if you invest in a growth plan rather than a dividend plan, the amount you would have received as a dividend is reinvested in the market. When compared to the previous plan, this results in more wealth being created in the future.

  • Not diversifying your mutual fund portfolio sufficiently:

When an investor invests in too many schemes of the same type, he or she believes that diversification has been achieved. Each Mutual Fund scheme is a portfolio creation and management of diversified securities in and of itself. Investing in multiple schemes of a similar nature, on the other hand, results in portfolio overlapping at a higher expense ratio. Rather than opting for it, investing in two or three schemes to the greatest extent possible aids in achieving the benefit of diversification.

  • Not keeping track of your fund’s performance on a regular basis:

Only a few investors who invest in the market on a regular basis track their investments on regular basis. If you review the performance of your portfolio on a regular basis, you will stay on track with your financial objectives. Due to a lack of periodic fund evaluation, your portfolio is filled with junk investments, lowering your average portfolio returns.Other important aspects to keep in mind while investing in mutual funds are the charges and the online platform used to track your investments.

We at Tradeplus offer an intuitive platform making it easier for you to invest in mutual funds and also to track them on a regular basis. 

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