Mutual fund investments are all in the rage these days. With several benefits of mutual funds enjoyed by investors, these investment tools have become the to-go investment option for most investors, especially the ones new to the investing world. These types of investments can be used to achieve your all types of goals – short-term or long-term, wealth creation or wealth preservation, tax saving, etc. One can begin to invest in mutual funds with an investment amount as low as Rs 100 per month. Before you go forth with mutual funds comparison to choose the funds that are suitable for your investment portfolio, there are a few mutual fund investment mistakes that you must be aware of. Let’s understand these mistakes so that you do not end up committing them while investing in mutual funds.
Mistakes to avoid while investing in mutual funds
Here are a few myths or blunders that an investor must be careful of before investing in mutual funds:
1.The lower the NAV of a fund, the better is the mutual fund scheme
Several investors live in the dark that they must invest in mutual fund schemes that have a lower NAV. However, that is a wrong approach to select the funds that are suitable for your portfolio. NAV or net asset value is the market price of the mutual fund scheme. In simple words, it’s the value derived by subtracting the liabilities from the assets per units. Hence, one must understand that the NAV of a fund does not matter while selecting the mutual fund schemes. Rather than that importance must be given to the price at which a fund manager or an investor buy the mutual fund units.
2.Mutual fund investments will fetch guaranteed returns
Though mutual fund investments have the potential to generate significantly high returns over a period of time, these investment options do not guarantee returns to investors. The amount of money an investor is likely to earn on their mutual fund investments is dependent on the performance of their assets against other securities. As a result, if you are looking for assured returns, you might consider investing in investment options other than mutual funds. Remember, mutual fund investments are subject to market risk.
3.Looking just at the past performance of the fund
Investors investing in mutual funds must not select mutual fund schemes solely based on their past performance. Though past performance is a good indicator, an investor must not make their investment strategies solely based on this parameter. Rather than just checking the past performance of the scheme, it is advised to investors to scrutinize every façade of mutual fund schemes.
4.Discontinuing SIP investments
One of the biggest blunders an investor can make is redeeming their mutual fund units as soon as the market shows volatility or due to market sentiments. Rather than focusing on these aspects, an investor must show some confidence in their investments and stick to their commitments. Remember, SIP investments help an investor to benefit from the concept of rupee cost averaging. So, an investor does not need to go about timing the markets to achieve optimum returns. Timing the markets usually does not work in the favor of investors who do not have optimum knowledge of the markets and backfires.
