Mutual fund investments are on the rise, but most people don't know what are they doing wrong while and after investing. Find out some of the common mistakes that investors should avoid.
According to a data report from the Association of Mutual Funds in India (AMFI), the mutual fund industry has added about 9.74 lakh Systematic Investment Plan (SIP) accounts each month on an average this financial year. Investing in MF gives the investors an opportunity to earn through the power of compounding over a period of time. Though mutual fund investments are on the rise, but most people don’t know what are they doing wrong while and after investing.
Find out what are some of the common mistakes that investors should avoid while investing in mutual funds:
Too many schemes – One of the most common mistakes investor commit thinking that they are diversifying. Though it is important to diversify your portfolio while investing in mutual funds, however, adding too many schemes to the portfolio just increases the burden of tracking them. Ideally, one should invest only in a few schemes that offer exposure to the overall market. Build a portfolio of two or three well-managed schemes and keep track of those investments.
Timing the market – One of the biggest mistake investors make while investing is trying to time the market. To maximize the returns some investors even sell their investments when the markets are high but only a few turn out to be lucky. Experts suggest the proper approach to invest in MF is at regular intervals. This also helps the money grow over the tenure of the investment. Start with investing in SIP, which not only helps the money to grow but also helps you invest in a disciplined manner.
Focus on asset allocation – Asset allocation is simply the proportion in which you invest in various assets. The primary determinants of your asset allocations are your financial goals, years left before they fall due, and your risk appetite. While investing you need to diversify your portfolio adequately across asset classes. For instance across, fixed income, equity, gold, and real estate among others.
Ignoring risk profile – Most investors are driven by the fear of missing out. In a bull market, investors ignore their risk profile and under peer pressure invest in risky avenues. Especially if you are saving for a goal, stick to your risk profile. Do not follow the crowd, stick to your asset allocation.
All your money in one place – Mutual fund will become a tricky game if you are investing all your money at one place. Hence investing large sum of money at one place, is not a good idea. Experts suggest taking a staggered approach to invest and avoid exposing yourself to timing risk.
Not reviewing your portfolio – Ideally, investors should track the performance of their investments at a regular interval. But, most of us fail to do so. However, to avoid obstacles in your wealth creation, in the long run, conduct a periodical review of all your MF schemes. This will help you know the funds in your portfolio that are underperforming, so you can get rid of them.