Mutual funds are investment options that have the potential to appreciate your capital substantially. But everyone who invests in mutual funds needs not to get this lucky. Hence, investing right becomes a key factor. For this, you need to research the fund, understand more about what your goals are, factor in the economic conditions and then invest in a mutual fund that has the potential to grow in the time frame you want it to grow.
While all this may seem like a chore, it is necessary for being successful in mutual fund investment. But the right way to start investing right is to avoid some blunders that are common. Below are 10 such blunders you should avoid while investing in mutual funds.
Not having a set goal
The key ingredient of a successful mutual fund investment is a set goal. If you don’t have a goal, you will be left without a basis for your investment decision. For instance, if you are planning to build a retirement corpus, you should choose a long-term scheme. But there is no way of knowing the same if you lack a goal.
Not knowing about the fund before investing
It is equally important to know clearly about the fund you are investing in. This helps you understand if the fund matches your needs. For instance, if we take the above example, if you are planning for a retirement corpus, you should know it is a growth option fund. This requires you to know more about the fund.
Reacting to short-term market fluctuations
Most mutual funds are meant for a longer term. They are able to correct the smaller downtrends in a longer time period. But if you begin to react to every dip in the market, you will invariably end up losing money.
Not having long-term plans
Compounding is a factor that helps your mutual fund investments a lot. It means reinvesting the profits from your fund so that the compounded corpus will start earning returns. But this is only possible if you have a long-term mindset.
Waiting for the ideal time to start investing
Unlike with stock markets, the need to time your investments are less when it comes to mutual funds, especially in cases of SIP investment. The best way to go about it is to invest early. This enables you to get the best out of your investment in the longer term.
Not having an emergency fund
Your mutual fund investments are not meant for emergencies. Instead, you should have a separate emergency fund. If not, you may end up using your fund during an emergency. This may take time and may become useless for you as well.
Not having enough amount for lump sum
You can either invest a lump sum amount or as monthly instalments in a mutual fund. If you choose the former, you should make sure that your amount is adequate enough. If not, it may fail the purpose of the investment.
Dividend options vs growth option
The dividend option pays you the profit that the fund garners, while a growth option reinvests the same. Ensure you keep an eye on the factor and choose what best fits you.
Not diversifying enough
Diversification can ensure your funds both protect and appreciate your capital. It is best practice to ensure your portfolio is diverse enough.
Not monitoring the fund performance
There is a misconception that you can forget about your investment in a mutual fund until maturity. That is not true. Instead, you should monitor your funds regularly to get the best out of them.
Following the above pointers can ensure your mutual fund performs according to your plans. Make sure you follow them for the best results.