5 Common Mutual Fund Mistakes To Avoid

Mutual funds are now becoming one of the most popular investment avenues among retail investors in India. And there’s a good reason for this growing popularity. With various types of mutual fund schemes available in the market, there is always a fund for every kind of investor- be it a long-term or short-term investor, a risk-averse investor or one with a high-risk tolerance.

However, if you are new to the world of investing, you must keep certain things in mind before you invest in mutual funds. More specifically, you must know about the most common mutual fund mistakes that investors tend to make, so you can avoid them.

#1 Having Unrealistic Expectations

This is one of the most common mistakes made by mutual fund investors. If you invest in mutual funds, you must create a portfolio after considering the risk of market fluctuations and expect realistic returns. This is because you cannot predict exactly how the market will perform in the future due to fluctuating economic, social, political and company-specific factors.

#2 Investing Without a Definite Goal

Each mutual fund has a specific investment objective. Some mutual funds may be suitable for long-term investments, while others may be suitable for short-term goals. Similarly, certain funds may have an investment strategy focussing on wealth creation, while some may focus on tax saving.

Having definite financial goals will help you choose the right type of mutual funds. For example, if your investment goal is to buy a house in the next 5 years, you can invest in a mutual fund that has an investment horizon of 5 years.

#3 Attempting to Time the Market

Timing the market is nothing but trying to find the right time to enter and exit the market. However, there is no ‘right time’ to invest in the market, since you cannot know how the market will be in the future.

If you decide to invest your money in a mutual fund when you see a dip in the market, you will probably assume that the market will move up in the future. However, what if the market continues to dip? Hence, you must not try to time the market, and instead, keep investing regularly with a long-term perspective.

Suggested Read: The Mutual Fund Show: Is It The Right Time To Invest?

#4 Ignoring Your Risk Appetite

This mistake can be very harmful to your overall finances in the long run. You must invest in mutual funds that are managed based on the level of risk you are willing and can afford to take. For instance, if you are a risk-averse investor who is investing in a fund whose objective is aligned for a risk-taker, you might end up losing more money than you can afford to lose.

#5 Having Investments in Too Many Funds

Diversifying your investments is essential to reduce the risk in your portfolio. However, that does not mean that you must over-diversify your investments by putting your money in too many mutual funds. Investing in too many funds will not ensure high returns.

Now that you know the 5 most common mistakes made by investors while investing in mutual funds, you can ensure that you steer clear of them. Keep these points in mind while you invest your hard-earned money in mutual funds. And while you do so, do not forget to research about the fund properly, study its investment objectives, charges, types of assets it invests in, etc. before you invest in the fund.