- Avoid buying schemes just because they have a low NAV
- Keep realistic goals
- Read all scheme-related documents carefully
- Diversify and learn about all associated charges
Investing in Mutual Funds requires a lot of patience and perseverance. It all begins with defining your financial goals, time horizon of investment and risk preference. Once you are clear about these three factors, you must chalk out an investment strategy and choose a scheme that aligns with your needs. Then, you should monitor the performance of your portfolio and rebalance whenever a particular scheme is underperforming. Having said this, there are times when investors lose their patience or get attracted to the next shining thing in the investment landscape. Here are 5 things that you must avoid as a Mutual Fund investor:
- NAV-centric buying
Don’t confuse the Net Asset Value (NAV) as a performance indicator of a scheme. Instead, try to assess the change in NAV of the scheme over a period of time. Look at the scheme’s historical performance* and the chances of it maintaining the same in the future.
Remember: NAV does not indicate the performance of a Mutual Fund Scheme.
* Past performance may or may not be sustained in the future.
- Ignoring the SID, SAI and KIM of a scheme
The Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM) outline various aspects of the scheme that can help you make an informed decision about investing in a scheme. Ignoring them can land you in a spot where the investment might not align with your financial goals.
- All eggs in one basket
One of the biggest advantages of investing in Mutual Funds is the diversification possibilities offered by them. Even if you have a high risk preference or a very low one, diversification can help you get through times when the market behaves contrary to your expectations.
- Having unrealistic goals
While having financial goals are necessary, they must be in sync with the average returns offered by the market. If an investor wants to double his money in one year, he will be taking undue risks and might suffer heavy losses too.
- Ignoring fees, loads and tax implications
While focusing on the performance of a scheme or the underlying asset is important, fees, loads and taxes can burn a hole in your pocket if you don’t take them into consideration. Account for these costs before calculating your returns.