Mutual Fund Shahi Hai
you need not look at other asset classes because #MutualFund is already an #Investment bouquet having different asset classes like #Equity, #Debt, #Gold, #RealEstate, #InternationalEequity, and many more. where an investor can take advantage of and can do #AssetAllocation as per requirement, which supports our #RiskProfiling. The only thing to be careful of is avoiding common mistakes.
An investor can enjoy amazing returns from mutual funds if he or she remains committed and disciplined toward investment goals. One can make the best use of his or her savings or income by investing in mutual funds. But an investor has to be careful while choosing proper mutual funds that are in line with his or her investment goals. Small blunders in choosing a mutual fund may cost a lot. Here is a list of common mistakes that an investor should avoid while investing in mutual funds:
Most common mutual fund investment mistakes:
1. Mutual Fund means Equity Funds only
One of the most common mistakes investors make while investing in mutual funds is that they are thinking investing in mutual funds means investing in equities. As we discussed in starting that through Mutual Fund we can invest in various Asset Classes like Equity, Debt, Gold etc. and also transferring investment from one asset class to another as per our requirement.
Mutual Fund Shahi Hai if you use it sensibly.
2. Starting investment by following market swing. (Impulse Investing)
You should clearly define your financial goals before you jump into Mutual Funds. One requires to specify his/her short and long-term goals before deciding on the investment portfolio. If you are planning to go on a tour abroad after a year from now, investing in a Debt Fund seems more appropriate. On the other hand, if you wish to retire after 30 years from today, you should set up your SIPs in an Equity Fund with risk management to have a large corpus in hand during your retirement.
When you take up an exam, you will have a target in mind when it comes to how much you want to score, right? It might be 35, 60, or even 100 out of 100. This target helps you to stay focused and be connected with your goal. However, some people tend to appear for an examination just because the rest are writing it.
Similarly, a lot of people, when it comes to investing, will fail to align their habits with their financial goals. They might invest aimlessly and thus would ultimately lose control over their investment. Having a goal helps you to stay focused and reach it at faster phase.
Also, a lot of people fail to understand the risk that is attached to their profile. Understanding how much risk you could take helps you plan your path better and choose routes accordingly. Taking up more than what you can, will increase the danger of losing everything.
Now, the goals of each individual will vary. It can be financial independence or owning a house, or providing for children’s education; having a goal and aligning it with your risk profile is the first and foremost step in investing and something you cannot afford to forego. Also, it is important to note that a lot of goal-oriented funds are also available in the market.
Investing without any goal is just like travelling without any destination.
3. Not adopting the proper strategy. (Risk Management)
Financial literacy is a big problem in India, but every investor should understand the requirement of analysing their portfolios for risk management. Through consistent analysis, investors can ensure their portfolios remain adequately diversified and proportionally risk-averse. However, even if some investors have specific allocation goals, they often do not keep up with analysing, allowing their portfolios to skew too far one way or the other.
Sadly, so many investors think that picking a small handful of stocks or investing in 8-10 Mutual Fund Schemes, means their portfolio is diversified, without realising that they’re opening themselves up to significant risk. On the other hand, so many investors think that because they invest in mutual funds their portfolio is diversified. But do they realise that if they don’t look at what those funds hold, they could own a group of holdings that leaves them more open to risk than they are thinking?
Selling an investment is more of an emotional decision than buying one. You know Risk Management/Rebalancing would mean selling something having higher risk and buying something having lesser risk, so you overlook this important activity by being emotional. Neglecting your portfolio can bring emotional biases and you may continue to hold assets that may hamper your goals.
Successful investing is about managing risk not avoiding it.
4. Investing without emergency fund protections
As the name suggests, emergency funds are for unplanned situations and not to meet the planned goals. They serve as a protective net. Emergencies arrive uninformed and need immediate action. It may present in the form of a medical emergency that calls for the immediate arrangement of funds or sudden unemployment that may cause a setback in the financial status of a family.
In situations like these, with the absence of an emergency fund to fall back on, you may have to borrow money from your friends or relatives. You might even have to take a personal loan or pledge jewels and return it by paying interest. If the requirement is huge, it may ultimately need you to break a long-term investment to tide over the situation.
Your Emergency Fund is not an Investment,
its an Insurance with One Purpose – to Protect you and your Family.
5. Not investing for the long term
People generally invest in Equity Funds to make huge money. Equity Funds can only generate long-term wealth if you stay invested for a substantially long period. Many people sell their funds losing their enthusiasm and patience after suffering from short-term losses. This doesn’t make any sense if you are aiming for quick money from an Equity Fund scheme.
If you are not willing to own a stock for 10 years,
don’t even think about own it for 10 minutes.
6. Not being disciplined
Humans are greatly driven by emotions and investing (read: gambling) is an endless temptation. You tend to get into the ‘game’ of playing around with your investments.
News and media hype about a certain stock or the baseless presumptions of self-proclaimed investment gurus most often lead to terrible investment decisions.
You tend to get into the flow and move your investments around more frequently than you must. This goes on to generate large amounts of implications of tax and transaction fees.
Building Wealth is a marathon, not a sprint. Discipline is the key ingredient.
7. Overwhelmed with Media
The media are corporate houses and have no interest in your net worth, rather they would like to please advertisers who help increase their net worth. By far the biggest mistake I see today is letting the media dictate how you invest. While the media is loud and comes from every direction today, they simply don’t know what’s in your best interests.
Many icons in the media sound like they know what they’re talking about but in reality, they know nothing of your particular situation, your assets, your portfolio construction, and impact factors. This is why it’s so important to take what we hear in the media with little credence.
Financial Guidance in media is just like an astrologer’s column in the newspaper, which is not valid for all readers because even though your zodiac sign is the same, the time and the location of your birth are different so the impact of the planets would be different.
Same way, the risk profile of a portfolio built at 40K Sensex is different from the risk of a portfolio built at 60K Sensex at 48K Sensex. Hence the advice can not be the same.
Financial guidance is a personal matter, we can not follow the media because the portfolio risk will be different for each individual. That is why Your own Financial professional is needed who will guide you after accessing your portfolio risk.
We can not follow the media because the portfolio risk will be different for each individual.
Media could be your source of information not the basis of your decision.
8. Not following the risk appetite
Many of us are influenced by the returns of two or three mutual fund schemes or based on tips from friends and family without realising how much risk we can take. We don’t check fund performance or volatility, how much the fund invests in a large cap, small cap and mid cap. Oh yes! It is technical but these things need to be checked because hard earned money is involved. Sometimes ignorance leads us to unbearable losses.
Don’t be fearful of risks. Understand them, and manage and minimize them to an acceptable level.Naved Abdali
9. Expecting Extraordinary Returns
While selecting Mutual fund investors choose investments with an expectation of unrealistic (40-50%) returns. This is not going to happen, and in an attempt to achieve that return, we are likely to be misled into funds that have shown a temporary spike in the performance. Always look at returns over a minimum 5 – 10 year period.
The success of an investment is all about its execution and is not about its outcome.Naved Abdali
10. The Dilemma of Stay Invested
Market drawdowns are only painful when you don’t have the cash to take advantage of them and your existing investments are showing losses. When you have the cash you have confidence. When you don’t have the cash you are just like everybody else. Always have some cash on the sidelines.
Markets can remain irrational longer than you can remain solvent“-John Keynes
Among the investors who invest in the market regularly, only a few of them track their investments periodically. If you review the Risk involved in your portfolio timely, it would keep you aligned with your financial goals. Lack of periodic evaluation of funds results in keeping your portfolio filled with junk investments which keep pulling your mean portfolio returns down.
We are going to discuss in the forthcoming blog the topic “Stay Invested”.
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