Oct 03, 2017 4 min read

Are You Committing Mistakes in Your Mutual Fund Investments?

Beware if you too are making same mistakes in your mutual fund investments.
The number of new investors in mutual fund has emerged extremely high in the recent time. Not only for the quest of amazing returns and simplified process, but there are other reasons too which pushed them into the lucrative zone of mutual fund investments. The majority of these investors is entering into the MF investment world for the very first time. Some of the political and economical implications in the country during the recent past are the most important factor for their debut to mf world.

Demonetisation had already pushed down the economy of the country to a certain extent, the bank rate-cuts made the regular saver more upset. It made the bank account saver eager to enter the other zone, which could provide them superior returns. Moreover, the positive trend in the stock market is also attracting many of the new investors to taste the amazing returns of investing in it. The majority of the investors is entering into the market for the first time and are blank about the various fundamentals of the mutual fund investment. Thus, they simply following the herd with the hope of getting something better, and pushing their hard-earned money into the wrong direction. Have a look on the mistakes which they are committing and make sure that you are not the one among them.

Common Mistakes Committed by the New Investors:

Ignoring the Risk Profile : Most of the new investors are committing this big mistake of ignoring the inherent risk of the mutual fund investment. They somehow believe that mutual funds are completely risk free and ensures high returns on the invested capital. Some assume that as the experts are handling the funds, they cannot go down the line regarding performance. Thus, they end up ignoring the various risks in different types of schemes that ultimately leads them into losses. Therefore, always know both the ends of a coin to ensure the possible consequences. Many fresh investors are betting upon the small-caps knowing that they are capable of providing multiplied returns. But, the majority of those investors is unaware of the fact that small cap funds are highly volatile and possibly lead to nullify the returns. If you too are running on the wrong track of your investment profile, then try switching to the correct one. Always assess your risk profile and accordingly invest in the most suitable scheme.

Debt Funds are not Risky : Most of the newly entered investors have the only classification of the mutual funds which is like, equity means risk, and debt means no risk. Many flocking to the debt investment unknowing the risk possess. The newbie, unaware of the fact that not all debts are risk-free, are deploying their monies into them. For instance, if you lend some money to your friend or any knowing person, there is always a probability that he/she defaults at the time of paying you back. Similarly, in the debt investments too, the companies may default due to any certain reasons. Therefore, do not be in the myth that debt category is not risky. But there are some schemes which invest in the government securities and bonds, they are risk-free and have the least probability to default.

Low Price allows to buy more Units : Generally, the new investors happened to get attracted by the low priced mutual funds and they blindly deploy their money in any one having lower NAV value purchasing high number of units of the fund. There is no issue in buying a low valued fund but doing so blindly can push you into a great dig of loss. Experts always advise to invest in a scheme which has a lower NAV as it allows you to buy more units enabling a possibility to larger benefits. But, they never say to furiously invest in any scheme just noticing the low price. Rather, you should check the other investment details of the fund before investing in it and ensure whether it is matching your profile or not.

The newly entered investors always tend to make such mistakes and face losses. Someone had very correctly said that a little knowledge is very dangerous, it is more harmful than ignorance. This is what’s happening with the newbies of mutual fund investments. They are simply running into the circle with expectation to earn wealth but unknowingly treading toward the wrong way. Therefore, if you have zero knowledge about investments in mf then take experts’ advice to go effective in your wealth creation process. In case you bear little knowledge, never try any blind experiments until you are not sure about the consequences. To develop understanding about the various fundamentals of mutual fund investments and make the best strategies, you can start reading our daily blogs at MySIPonline. For investments too, you can get associated with us in less than two minutes.