Investment mutual funds is a risky thing due to people not having actual knowledge of do’s and don’t. But, once you acquaint yourself with all the rules, strategies, and things that you should know, it becomes a lot less risky.
For starters, you can check out the list of common mistakes people do while going for Mutual funds and end up not having satisfactory results. These are the 6 things that will help you become better in managing your mutual fund’s investment.
Stick To Your Plan
Choose one asset allocation plan and stick to it. It has its own risks and measures which are calculated and switching back and forth between plans is going to do you no good.
“The biggest mistake that an investor may commit at present is diverting from the financial plan, assets mix, or investment strategy. Some may think of exiting equity investments or investing more in Gold, as the former is struggling and latter is appreciating,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives,
Debts Fund Have Their Own Risk
Generally while selecting Debt funds, most people go for the ones producing high yield and forget to measure the risk they carry. One needs to check that as well or it can backfire.
“Recently, we have seen defaults by securities in a few debt funds and investors have lost their money. This was a product that was sold as being as safe as an FD but unfortunately the underlying is much riskier than that. Investors must not just look at the yield of the portfolio but also understand the holdings in the fund to evaluate whether it is appropriate for their risk-taking ability,” says Rishad Manekia, Founder and MD, Kairos Capital, a Mumbai-based financial planning firm.
Get Exposed To International Markets
You need to create new opportunities and global markets are a better way of doing that. The markets have some of the highest yielding assets and you can go for that with proper exposure.
For the past several years, and even today, investors have missed out on investing in international equities. If we look at our everyday consumption, we are perfectly happy to buy Hyundai cars, Samsung TVs, LG washing machines, and Google phones. So when we are spending on products of internationally listed companies, then shouldn’t it make sense to also invest and get exposure to these global companies?,” says Manekia.
Too Much Diversification
Global markets, commodities, and a lot of diversification can be added to your mutual funds investment but keep in mind that too much of anything is not good. While on one side, being diversified is a good thing, you need not to do it more than required.
“Over-diversifying is another mistake that investors tend to make in falling or volatile markets. In order to mitigate the risk, some investors may try to spread their money in multiple funds and several categories of funds like large-cap, mid-cap or small-cap, or even start investing in sectoral funds which are supposed to do well in times to come. It may probably help in the short-term, but in the long-term, it may backfire when the market situations change. One should understand that diversification beyond a point do more bad than good to your portfolio,” informs Col Govila (Retd)
The equity market is volatile and everyone knows that before investing in Mutual funds. But one cannot always play safe and if you’re making an investment for a longer-term, then it really didn’t matter anyway.
“There are other conservative investors who might go a step ahead, redeem all their investments to be on the safer side and put it all in say, savings bank account getting negative inflation, tax-adjusted returns. Such actions can only jeopardize their future goals provided they had invested in a correct asset allocation strategy as per a plan in the first place,” says Col Govila (Retd).
Over Exposure In Gold
Gold always keeps growing and in the last year, it has generated nearly 40%. You can go for many other assets but this is one which will have you be tension free in many ways.
“Because of gold prices going up, there is a risk that investors may go overboard and invest too much in Gold. Certainly, gold has a place in one’s portfolio, but it should be limited to a percentage based on the asset allocation, informs Manekia.
Allocate your funds according to your risk appetite, invest in what you have the most interest in. Investment in mutual funds is gradual study, gain more knowledge and start the process.
What are your ways in which you save yourself from a mutual fund debacle?