Investing in Mutual funds? Avoid these common mistakes

Mistakes in Mutual funds

Reports indicates that inflow into equity mutual funds, which saw surge in investors throughout past couple of years, because of rising stock indices have dropped for the third consecutive month in Jan 2019. Equity funds inflow, including Tax saving- funds, stood in a two year low of Rs.6158 crores in Jan.

While volatility along with the constant dip in indices might be unnerving for the ordinary investors, stopping the systematic investment plan in a knee jerk reaction isn’t the best idea.

Stopping SIPs

Volatility is the inherent characteristic of the equity market, however as an asset class, equity is the only asset class which may beat others and conquer inflation by a wide margin over the long run.

Those with existing SIPs should continue with them as that would average out the investment cost and help them to reap higher returns over the longer term. As a matter of fact, equity mutual fund investor should exploit such opportunity by topping up their existing SIPs with fresh lumpsum investment in a staggered manner.

In the past, equity funds made during bear market have given higher returns than those made during bull market. Hence, investors should make the most out of the bear market phase by raising investments in existing funds.

“Market downturn are always a good opportunity for investors to top up their investments, especially if they are under allocated to long term investment assets like equities or equity mutual funds. Investor should use this opportunity as this will pay off handsomely in the long run”

Getting flustered by Short-term Moves

If you’re among those equity mutual fund investor who gets unnerved by short-term volatility, then you’re committing a mistake.

To take advantage of your equity mutual fund investments, you need to have the patience and strength to ride out the short-term volatility. Focusing on the short-term returns instead of considering the long-term benefits is a common mistake investor commit during bear phase of the market.

It’s also not sensible to redeem the investments, that are intended for the long run.

Timing the Market

The equity market is filled with uncertainties and risk. Even the most experienced investors could find it hard to grab the bottom or predict the top. If you’re attempting to time the market for entry or exit, the odds are that you’d more often than not be caught on the wrong foot. Therefore, if you pull out the money and market suddenly picks momentum, then you’d lose the opportunity to make profits. Hence, systematic way towards investing is the perfect way to create wealth.

Mess around with Asset allocation

Investors Should avoid the mistake of panicking in scenarios where the fund portfolio value continues to shrink due to sliding stock market and change their investment into secure investment options with low returns.

Market downturn are always a goodtime for investors to re look at their portfolio and rebalance the portfolios to match with their desired asset allocation as per the risk return objectives.

However, one should not move all investments into risk free assets in a rush. There’s no need to get excessively defensive or aggressive at this moment. Maintain your ideal asset allocation in mind and stick by it.

Many investors would have allocated exposure to midcap and Small cap funds based on the recent performance of these categories and without taking in to account of the risk profile.

Rebalancing can be done on the basis of investment objective and time horizon


1 Comment

  1. Tell me how we can add lump sum to SIP.
    I had made lump sum investment some 4 years back. In November 2018, I converted it from regular to direct. Will I be charged exit load if I redeem partial amount before November 2019?

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