If you have not invested in a mutual fund scheme till date, you are not trendy for sure. The monthly systematic investment plan (SIP) book of MFs have swollen to Rs 7,300 crore, underlining the preference of Indian investors in volatile financial markets. The idea behind most investments is wealth creation over a long period of time.
However, not many make it to the wealthy end. There are several reasons behind the not so happy ending. While markets remain volatile and do not care about your investments, your own actions sometimes are detrimental to your dreams. Here is a list of mistakes MF investors must avoid to ensure one makes money by investing in mutual fund schemes.
Ignoring your financial goals
If you ignore your financial goals, you will end up investing in avenues that do not suit your needs. For example, if you have to accumulate Rs 1 lakh to pay for your child’s fees next year, it makes sense to start investing in a recurring deposit every month or put that money in a fixed deposits maturing at a time when you need it. But if you invest that money in an equity mutual fund, the market may give you a rude shock.
The same holds true for long term investments such as retirement. “Never invest that money in a dividend option of a MF. It does not let the money compound as many times investors forget to reinvest dividend income. Introduction of dividend distribution tax on equity funds further eats into your returns,” says Abhinav Angirish, Founder and CEO of investoneline.in. He recommends investing in growth options of schemes if you are saving for long term financial goals.
Trying to time the market over time in the market
Instead, it makes sense to keep investing at regular interval and let your money grow over a long period of time. “Invest in equity fund through SIPs and hold your investments for the long term. This will help you overcome timing risk,” says Jitendra Solanki, Founder, JS Financial Advisors.Chasing high returns
Investing in too many schemes
Ignoring risk profile and asset allocation
Solanki advises sticking to your risk profile. Instead of going with the crowd, it makes sense to strictly adhere to one’s asset allocation.
Investing all your money at one go
Not reviewingMutual funds are vehicles to invest in various asset classes such as gold, equity and bonds. Each fund manager has his way of making money for his investors and is governed by the scheme’s objective. The investors are expected to keep a track of his scheme’s performance from time to time. It makes sense to conduct a periodical review of all your MF schemes and weed out underperformers, if any. Failing to review can cost you a fortune.