Sep 19, 2017 4 min read

Investing in Mutual Funds is not a Number Game, it’s a Mind Game

Do you think that choosing the schemes by calculating their returns will worth? It doesn’t.
You must have often heard that if one has a fear of the number, then he/she may not go well in investing without an advisory. But, have you ever dig into the matter that why it has been said. Yes/No? Doesn’t matter because we are here to provide you the actual scenario of investing in mutual funds.

First of all, investing is not a number game, it’s a mind game. Try to think once that what numbers can do for you when you are building a strategy for investing. What can you do if you are a master in calculating big numbers? Simply, not much for your investments. All you can do is the calculation part and can arrive at some numbers again, that shows the probable future returns and other related amount. Money making is a strategic game of mind which do not require the professional techniques; even a non-specialist can build a solid strategy to find the solution to his problems. Similarly, the same mind-situation works the best when investing in mutual funds. “Until you can manage your emotions, don’t expect to manage your money” - Warren Buffett. There are certain behavioral errors which most investors are committing unknowingly, and stopping themselves to earn better returns, which includes:

Holding Sunk Investments : Some people sit through a dull or uninteresting movie just because they have already paid for the ticket. What do you think about this? Will you do the same and sit through the bad movie just to reap the full benefits of the money you’ve paid for the ticket! Of course no. Because you know very well that the value of the money you have already spent is lost and there is no point in wasting your time too for an unsatisfactory movie. Similarly, in mutual fund investments, some people end up deploying their hard-earned money in bad investments, and they understand it later. But, they make the big mistake again by not quitting the investment in the hope that it may benefit them in future. In such a situation, you don’t need numbers but use your mind only and match if the investment in the scheme really worth. Is there any strong point to stay invested in that scheme? Does the objective matches? If not, then quit.

Following the Herd : Mostly the investments are driven by the herd mentality. People park their money in any asset or security only because their friend is doing so, or the known person advised, or any other reason. When the market price goes up, the most of the people buys the investment and the followers also do the same. Most of them do not even understand that why the prices are rising. When the market goes little southward, they panic and sell off their investments. They simply copy what the entire community do, and during the critical situations they end up with no clues of making any decisions. In such cases, you must look into your portfolio and see if you are holding any fund which doesn’t suit your profile, or likely to fall in the near future. Sell off only those who have the risk of losing money, and not those who are fundamentally sound for a long-term period.

Common Mistakes Committed by Most of the Investors:

  • Investing in a fund simply because of your friend’s or any other family member recommended it, and end up buying the one without understanding its underlying volatility or the risk profile.
  • Hearing any negative news from any source push them into anxiety and they become ready to sell off unknowing the long-term profitability.
  • Selling the one which has given profits and keeping the one which is useless with a hope to recover the invested value from it in the future.
  • Some always fear of losing money, and they always watch the price of the fund. If it goes down, they sell it without considering the long-term capability of the fund or the value of the fund in their portfolio.

Therefore, not only numbers but your mind supports you to attain a successful investment plan and stick to it for the best benefits. Taking the advise of the expert is not a bad idea but following greed, anxiety, and fear is the biggest mistake which don’t let you enjoy efficient investing. You can also earn higher returns on your investments, you just need to know your investment objectives precisely, and accordingly make the decisions and choose the suitable funds. If you are looking at online based investment solutions, or more knowledge about various fundamentals of investing in the mutual funds then visit the ‘investment tips’ page at MySIPonline and read our daily blogs.