Common Mistakes Made by Investors While Investing in Mutual Funds

Investing in mutual funds, like any other skill, can be learned and perfected over time, through persuasion, commitment, discipline and of course, by learning from past mistakes. Notwithstanding the scale and objectives of your market transactions, you may have taken investment decisions which had room for better judgement and intellect.However, it is possible to enrich your investment expertise by being aware of some common mistakes like:

On the back of a bull run in the market, many fund houses are offering aggressive growth funds with very high exposure to low-rated small and mid-cap stocks. Given their highly speculative nature, such funds are not likely to deliver sustainable returns in the medium to long term. The high expense ratio apart, these funds are highly susceptible to volatility.While it is natural to be lured by the prospect of market-beating returns, investors need to weigh their exposure against the potential for profit. If you do not have a fast-approaching financial or life goal on the horizon, it may be better to opt for balanced growth funds instead.

Cashing in on higher asset valuations has always been one of the time-tested ways of making money with mutual funds . However, doing so at the earliest available opportunity may rob you of well- deserved compounding benefits on your investment. It pays to be patient when it comes to mutual funds, even when the short-term outlook is far from bright.While the temptation to redeem units can be high, if you own equity funds with a substantial long-term performance record, you might want to hold on to them to benefit from better averaging in future.

If your portfolio is heavily skewed in favour of balanced funds, you may be missing out on the benefits of diversification. This is because regular income from such investments is all but guaranteed. Dividends from balanced funds are contingent on there being enough surplus to draw on. If the current market conditions do not allow for that, over reliance on regular income plans may be harmful.To make your money work harder for you, you need to customize your portfolio to meet current and anticipated financial needs. Review your investments regularly to ensure that any under performing ones are replaced by new ones that are more suited for your needs. Treat mutual fund investments not as an obligation but as a vehicle for realizing the life of your dreams.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.