In this article, we will discuss five things to avoid in mutual fund investments.
We have heard so many stories of people who have started investing in Mutual funds, and then after few months, when they see their portfolio in red, they sell it and move out of the market.
But eventually, they again start buying when they see that market is again going up, which causes a permanent loss in their portfolio.
Now, friends, these people will say that mutual friends investment is not good and one who invest in it always bears losses, and you can never earn money through these means.
Let’s discuss things that you should never do with MF investment.
Five Things To Avoid In Mutual Fund Investments
It’s not a quick-rich scheme.
If you want to become rich in few months, then a mutual fund is not the investment you should go to. Technically and logically, there is no single scheme in the market that can guarantee richness in the short term.
Let me give you an example of how things can go incredibly wrong if you don’t follow the above step.
Let’s suppose you have saved money for your daughter’s marriage which will happen after one and a half years. You came to know that investing in mutual investment gives excellent returns, so you invested all your saved money in a mutual fund, but after one year, there is a market crash, and your cash becomes 50%. Now for your daughter’s marriage, you are taking a personal loan. The most significant mistake you made was invested your money for such a short term.
Equity mutual fund should be invested for a minimum of 5 years; otherwise, it will not give you the required return. So only invest in a mutual fund if you require money after five years.
Stoping the running SIP
Often we see people stopping their SIP, which was set for any particular goal. Mutual Fund SIP runs on a principle of rupee cost averaging, which helps increase the value in the long term.
Let’s take an example from the above table:
- Amit started a SIP of Rs 3000 in one of the mutual fund schemes.
- From January till December, he paid regular SIP on time.
- His average NAV was rs 102.83.
- He has accumulated 351 units.
He hasn’t tried to time the market if you look carefully, which is impossible for any investor. He invested systematically. He bought in a cheap market as well as an inexpensive market, thereby reducing his losses. So that is the reason why one should not stop SIP irrespective of the market scenario.
Chase Goals And Not Returns
Let’s take the example of a gentleman name Sumit. He was blessed with a baby girl, and from there, he consulted with his certified financial professional to achieve his financial goals.
His certified financial professional(CFP) advised him to set a financial goal for his daughter and retirement.
CFP divided his financial planning into three major goals:
the first and foremost goal was the higher education of his daughter, which required hefty money at the age of around 18 years.
The second goal was her marriage which will happen after 25 years.
The third goal was retirement which will happen after 30 years.
So he was extremely clear about his planning; he was not in fear of any crash or any bull run as he was focusing on his goals and not return. He knows that his goal requires time, and he was ready to give the required time.
Not Seeking Professional Help
There are times where we have seen people investing money in mutual funds on the pretext of getting advice from friends and relatives, but that can prove fatal as only investing in funds will not help but investing in the right fund on the advice of CFP will ensure guaranteed success in the long term.
Sometimes even after investing for a longer tenure in a mutual fund, we didn’t get the return that we have expected as when we seek professional help, they advise us the right asset allocation, which is not possible in case you take advice from friends and relatives as very few people know that creating wealth is the mix of right asset allocation and proper goal planning.
Selling Good Mutual Funds
One of the biggest problems we have seen in recent days is that people often sell their good Mutual fund after it goes down drop in performance for few days; this happens with every good stock and MF as when the market goes down, all stocks and MF goes down irrespective of their past good performance. This is a short-term phenomenon, and it always happens.
People who understand the market scenario will have that patience and will remain invested even if the market goes down.
We have to check if any MF is not performing even after 1 or 15 months, then we need to check and research why it is not performing. If we get to know that the said fund is not performing because of some wrong asset allocation, we need to change that fund.
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