Mistakes to Avoid While Investing in Mutual Funds

Market has set new benchmarks this coming year, and this should not be the only reason for you to choose the best mutual fund scheme to invest. Do not consider the market peak and evaluate the reasons on why you plan to invest in the market. If your objective is to achieve a long term financial goal then you need to proceed ahead.

Do keep in mind you should invest in mutual funds if you have an investment horizon of close to 5 years. In addition you need to be well versed with volatile nature of the market. If the boxes are ticked then you can opt for a mutual fund of your choice.

Do not pick schemes on a yearly return basis

Investors are known to focus on key market indices mutual fund investors’ end up focussing on short term returns. They do end up picking schemes on a yearly performance and this is not a clever strategy. They realize their mistakes when they interact with experts on an online forum and at the same time getting out of such schemes cost you a lot. If you exit early there is an extra load charges levied.

Give due attention to your risk profile

New investors bet on small and medium sized caps and are of the opinion it can make them rich quickly. But this does not mean that the same performance could repeat year after year. If they do they are volatile and risky meaning that it suits risk takers of high volatility. A conservative investor may adopt a safe first approach. Assuming a situation you have a high risk capacity where your objective is solely on returns. So you can go on to opt for schemes that suits your risk profile.

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Rather than what is required do not invest in ELSS

Yes to a certain extend ELSS are valid for a first time investor. But no way would it mean that you invest your entire sum of money on them. The point of consideration is you should not be investing more than 1.5 lakhs. This is the maximum amount qualified under section 80 C of the Income tax act. Even if you go on to invest more than the required amount you are not entitled to any tax deductions. Diversify your invest portfolio and invest in other areas that can provide you with substantial returns.

Do not go with the wind

A lot of terms like balancing of portfolio, book profits would seem confusing to a first time investor. Some people do end up following this advice. But as a first time investor you should not end up following this advice. If you have gone on to undertake a reasonable degree of homework before investing you should ignore the noise. To an existing investor these advices would be of help but not to a first time investor. It is better for a new investor to ignore such investment tips if they are planning to make money.

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