Investing in mutual funds has proved to be one of the best methods to grow your wealth in a short amount of time. Consequently, more people are jumping on the bandwagon every day and investing their hard-earned money in this investment vehicle. One of the critical reasons for this popularity is that mutual funds offer the opportunity to diversify, and therefore spread-out their risk over a number of investments.
However, this doesn’t mean that there are no risks involved. In fact, mutual funds come with their share of risks, and you must be careful while investing in any scheme. If you are new to the world of investments, here are 5 common mutual fund mistakes that you must avoid.
#1 Not defining your investment objectives
Sure, investing your money today is a certain way of securing your future. But investing without any financial goal can be a mistake. You must define and map a clear goal before investing in mutual funds as it helps you figure out the duration and decide how much money you should put into a scheme.
#2 Having unrealistic expectations
If you are a first-time investor, chances are, you have high expectations from the schemes you invest in. There’s no doubt that mutual funds have the potential to fetch you higher returns, but you must be prepared for market fluctuations and have a holistic view of the long-term trends.
Also, chasing only past performance of funds is not a wise move as past performance of funds is not a specific indicator of the funds’ future returns.
#3 Ignoring your risk appetite
One of the most common mutual fund mistakes is not knowing your risk appetite. This is crucial because your risk profile tells you to avoid investing in specific schemes and funds. For instance, if you are a risk-averse investor, then a small-cap fund may not be the right choice for you as they carry higher risk. Therefore, before you jump in the deep end, it is better to test the waters and analyse your risk tolerance.
#4 Investing in too many funds
There’s no doubt that diversification and spreading your investment is an essential step as it reduces the portfolio’s overall risk. But that doesn’t mean that over diversifying your profile is the way to go. Having a large number of funds does not ensure that you will earn high returns. Plus, it increases the chances of underperforming funds in your portfolio.
#5 Having a short-term strategy
When investing your hard-earned money, you must have a long-term growth strategy and mindset. Staying invested for a more extended period and having discipline can be extremely rewarding. So, don’t be discouraged by short-term losses and aim for long-term and sustainable growth for your funds.
Additional Read: What Are the Advantages of Investing in Mutual Funds?
Last but not least, not researching the fund properly before investing is another grievous error that you must avoid. And to research and compare different funds easily, you can download the Moneyfy appby Tata Capital.
It can be a reliable companion on your investment journey and will help you invest and manage your investments with a few clicks. So, why wait? Download the app today and fulfil your financial aspirations with ease!