The line “Mutual Funds are subject to market risk please read the offer document carefully before
investing”, in itself is pretty scary to make people run away from mutual funds. The little detail that we
miss out here is that it’s a notice not to run away but be careful.
Mutual funds have now been around for quite a long time but still the awareness about investing in
them isn’t seen. While you decide to get into mutual funds or any other investment for that matter, you
need to decide a goal for which you are investing. Your goals are play the most vital role in planning your
investment. The type of goal you have short term or long-term becomes the deciding factor of how
much and where it would be wise to invest.
There are a few common mistakes that people make on their way to make investments let’s give you a
gist of them and try to keep you away from the same trap.
1. Following footprints
It’s always a lot more easier to copy what others are doing instead of creating your own path
but let’s not do this while investing please! Your goals & ability to invest is not going to be
similar to anyone. Most of us get unsatisfactory results by imitating someone else’s
investment plan as what we aim is different from what they do.
2. Choosing mutual funds based on it’s short term rating
While planning to invest in any of the mutual funds it is better to see the graph of the fund
over years and not judge it by it’s performance over a year’s period. When we generally plan
to invest in mutual funds, best practice is to invest for longer period of time and so there
might be certain funds that do not show great highs in a year’s performance but are likely to
have consistent results if seen for certain years collectively.
3. Investing in a mutual fund based on returns over short-term
When the market conditions are favorable, even poor performing funds can show good
results. What we need to observe before investing is that whether the chosen fund perform
well or at least does not under perform in adverse market conditions, if that stays true to the
chosen mutual fund Kuddos, you are on the right track!
4. Choosing a mutual fund based on low expense ratios
We all like to expend little and gain more but if while choosing a mutual fund you only focus
on this aspect, we are not sure that you would get guaranteed results. While low expenses
can be one of the reason to choose a mutual fund, it shouldn’t be the only reason to choose
as it might not really deliver you consistent performance for your investment tenure.
Pro tip while choosing mutual funds for your investment would be to align your goals, tenure of
investment with the corpus and without get excited about good short-term results focus on consistent
performance of the funds.
