Are You Committing These Mistakes? Stay Alert If Yes!
Popular investing wisdom suggests starting the investment career with SIP. They say, put your money into mutual funds and let the professional fund managers drive them to the destiny. Yes, it is correct to some extent, but do you really think that the fund manager will keep in mind the destination for the money of thousands of investors in a scheme. Doesn’t sound practical? Do you really think that fund managers are not putting in effort to help you attain your financial objectives? It’s not correct.
Actually, the reasons for weak earnings on investments is not the fault of the fund managers at all. There are some mistakes which the investors are committing, maybe unknowingly, which are affecting the returns on their investments.
Some mistakes are committed by most of the investors, especially the retail ones. Here’s the list of some common mistakes that should be avoided in order to increase the profitability of the investments and earn good results in the end:
- Don’t Get Enamored of the Dividend: It has been seen in the case of most of the retail investors that they get attracted to dividend plans as they allow payouts. Investors get happy when they receive the dividends on their investments. But, that’s the biggest mistake you do in mutual fund investment, if your objective is to create long-term wealth. It is because the dividend is nothing but your capital coming back to you. In the long run, most of the dividend lovers end up facing loss in their investments. So, if you are doing any such mistake or love to receive periodical dividends, then stay cautious, your investment may not last for long.
- Beware of Over-Diversification: Mutual funds are designed to diversify the risk from investing in one particular stock. It helps to reduce the risk of losses. In more simplest words, it spreads the total investments into various stocks so that the risk gets averaged down when totaled in the end, and you can earn healthy returns. It is quite similar to the medicines that a physician prescribes you. Suppose, you got sick and thus visit a doctor. He prescribes you a combination of medicines understanding your physical and mental situation. Now, if you take the combination of medicines as prescribed, then you can attain the physical fitness again in the required time. But, if you try to take multiple combinations together, in greed of getting fit earlier, you may get sicker. Similarly, in mutual funds, the expert can suggest you the best combination of schemes by understanding your requirements and other factors. But, if you try to add schemes in the greed of diversification, your portfolio may get highly variegated. And, this may harm your financial fitness.
- It’s not a Race, It’s a Marathon: Some of the industry experts have related the investing to the marathon and not a race. According to them, investing should be a goal-based approach, and one should not invest in with the herd mentality. As in a marathon, the target is to finish the run, no matter how fast you ran the first 100 meters or if you were a constant runner in the entire marathon. The only objective should be is to finish the run. Similarly, the investors should invest to attain the goals rather than following the herd. Investing is a goal-based approach, stay focused toward your goals and not on how you travel the journey, as ups and downs are always the parts of it.
- Remember, Past Is Past: Yes, you got it right. We are saying about the past performance of the mutual fund schemes. There is no problem with the past performances. Even the professional analysts also consider them to determine the probability of future performance of the mutual funds. But, most of the retail investors commit a mistake that they completely rely on the past performances and invest accordingly. This is a very serious mistake in investing. It’s cool until you take historical data as analysis, relying entirely on them and taking investment decisions is a full-fledged foolish idea.
- Hunting for Low NAV Funds: Most of the time it is seen that investors seek to invest in the schemes that have low NAV. They typically have a believe that a fund having lower NAV holds cheaper stocks, investing in which can be beneficial than that of high NAV funds. There is another fact which is called value investing. According to it, the investors find value in some undervalued stocks and earn excellently. This concept stands true in stock trading and has hardly any impact on mutual fund investing. However, the fund managers use this technique to find out gems. And experts use it to analyze the scheme portfolio for you. But, some of the investors, those who are aggressively on their way to hunt for a cheaper fund also believes that they could get a victory in finding an undervalued gem, and become a millionaire. This belief keeps them energetic enough to hunt for the lower NAV funds. If you are also a hunter like them, cool down and think. Don’t mix up things and focus on only one way.
Henceforth, if you too are committing any of such mistakes, stay cautious. Your investments journey may not help you go a long way. Take the experts’ help in making investment decisions and go smoothly on your investment. We, at MySIPonline, are also concentrated toward simplifying your investment journey. So, start your investment with us today!
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