Mutual Fund: Looking for top MF schemes to invest in a high market? It’s a big investment mistake | The Financial Express

Mutual Fund: Looking for top MF schemes to invest in a high market? It’s a big investment mistake

To take advantage of the sentiment of investing money when the market is up, many companies and MF houses launch their IPOs and NFOs (New Fund Offers) during market rallies.

Mutual Fund: Looking for top MF schemes to invest in a high market? It’s a big investment mistake
As mutual fund (MF) investment is subject to market risks, investors have little scope of making mistakes.

As mutual fund (MF) investment is subject to market risks, investors have little scope of making mistakes. However, most investors – especially the inexperienced lot – make the first mistake by starting equity investments at a high market and end up buying some units at a high price.

To take advantage of this sentiment of investing money when the market is up, many companies and MF houses launch their IPOs and NFOs (New Fund Offers) during market rallies.

Such novice investors actually get lured towards equities after seeing the existing investors getting high returns during the market surge, oblivious of the fact that the old investors had invested at a lower market.

As their prime motive is to earn good return, to choose an equity-oriented MF scheme to invest in, they scan the return chart to select the scheme at the top of the chart.

However, in a high market, the most risky category would produce the maximum return and among the category, the scheme taking the maximum risk would occupy the top slot.

So, selecting such a scheme would soon prove to be a costly mistake, when the risky scheme would slide down the chart as market corrections start.

Oblivious of the risk factors, you might get very happy to select the scheme giving top most return, and by investing in lump sum, you would commit the top investment mistake.

This is because, once the market moves down from the peak, the scheme would reach the bottom of the chart very fast.

If your prime motive is to get high return, you would easily panic and see the return in the negative zone and instead of waiting for the market to go up, would commit the grave mistake of selling it to turn the notional loss to a real one.

Although, investing through Systematic Investment Plan (SIP) is a less risky way to invest in equity MF schemes, investing in a scheme occupying the bottom position of an investment category for a prolonged period is very demoralising. As a result, you would stop the SIP after some period, thus missing the chance of buying the units at a scrap price and missing the chance of making a high return when the scheme moves up during the next up cycle.

So, if you are new to equity investment, it’s better to either take advice from a financial advisor or leave the responsibility scheme selection to an experienced MF distributor.

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