Mistakes Mutual fund Investors Make
Generally internet is flooded with lot of materials available about benefits of investing in Mutual Funds and SIP etc but I normally don’t come across about Mistakes people make while investing, and how to avoid these mistakes, mistakes happen commonly but the consequences of it is hardly shared as these mistakes will seriously affect the most important aspect of your investments i.e. returns. Hence i have made an attempt to write on this subject, this is just based on my experience i have had so far!
Waiting for “Correct” Time
A lot of investors wait for an opportune time to invest in the markets and put lot of efforts to time the market, without knowing that we can make money by not timing the market but by spending enough time in the market. Timing the market has become a fancy term that investors often forget whether one need to do that. If you want to start investing just start investing, if you are not comfortable with the market valuations, then start using options like SIP or STP to enter the market so that we have some exposure in the market.
Going Behind Returns
When investors plan for new investments or additional investment, they just finalise on the schemes based on the returns, they forget other aspects like consistency, upward / downward capture ratio, fund manager history etc. The capture ratio is an important parameter as it gives us how good the fund manager is protecting the fall. The consistency of the fund implies how volatile the fund is. So do not let single aspect determine your investment decision, analyse couple of factors to determine the schemes for investment.
Trading in Mutual Funds
Investors with exposure in direct stocks and who follow markets on a daily basis try to trade in Mutual Funds as well, they just invest certain amount and once they make some quick money they try to sell the same and invest in some other fund, they trade in Mutual Funds like stocks and do this, by this they ignore the like tax, exit loads and certain other transaction costs. Have seen portfolio of these clients doesn’t move irrespective of market going up as transaction cost would have eaten away the returns. Simple advice is have a Asset Allocation strategy and stick to the same irrespective of market behaviour, have a plan for all your investments and tag the same towards some goal so that whenever you feel of redeeming the same the underlying goal will come into your mind.
Ignoring certain funds
There is a common misconception that mutual funds invest only in equities and for debt we need to look at other conventional products like FD, Post Office Schemes etc. Investors tend to overlook debt funds thinking that only equity funds gives returns or debt funds are only of big or corporate investors, debt funds are a very diverse category, there are various kind of debt funds which can be invested for various Investment purposes. Debt funds like Liquid funds and Short term funds can be looked if you have idle money in your savings account, if you want to invest in debt funds but get taxation of equity funds you can look at Arbitrage funds.
Too much diversification
Investors often make mistakes of completely ignoring that too much diversification is injurious to one’s portfolio. By diversification they tend to invest in more schemes with same objectives and this will lead to serious overlap of stocks. Large cap funds has to invest in only certain set of stocks so have often seen overlapping of single stocks in almost all their investments. So if the underlying components are same, the performance will be similar and this will leads to concentrated portfolio and stagnant returns. Checking the mutual fund portfolio will ensure that you do not own same stocks in almost all your investment schemes.
So to conclude, if you have been practicing any of these criteria in choosing your investment schemes, be wary. Hope this article of mine would have made some sense and if you find it interesting and helpful to make you investment decision; please do share among your friends, relatives and colleagues.
Happy Investing!
R♥Vi
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