Mistakes done by mutual fund investor !!!This is a Complete and simple guide about how to avoid mistakes while investing in mutual funds.
To earn money is never easy. And even many financial products available in market, we always stuck with a pressing question that where to invest money?
So when you set financial goals for yourself and looks for a product which can fulfill you financial goals then mutual funds scheme are always a best choice.
Why to invest in mutual funds?
Mutual fund is the best product which can beat inflation and can match your financial goals keeping investment horizon and risk profile in consideration.
Types of mutual funds
There are different types of mutual funds but basically 3 majors are :-
An Equity fund is a mutual fund which invests minimum 65% of investment in equity and balance 0% to 35% in debt securities like government bonds, treasurer bills etc. It generally gives high returns compare to other funds as it invest majorly in equities but also higher risk product.
If you are a high risk tolerance investor than you should invest in equity mutual funds to earn extra returns over your investment and to achieve your financial goals. Its always favorable for long term horizon which is more than 5 years.
A hybrid fund is a mutual fund which invests mainly in 2 asset classes i.e equity and debt . The ratio of equity and debt enables a hybrid fund to give returns similar to those generated by equity funds but lower risk levels due to debt component.
A debt fund is a mutual fund which invests a majority of its assets in debt and money market securities. Debt funds are relatively lower levels of risk.
So when you are risk –averse, you should look for Debt mutual funds .As it is compose of Treasury bills, government bonds, corporate bonds type instrument so having very less risk and your return is the interests earn over it. Debt funds are generally favorable for short term horizon which is less than 5 years.
10 Common Mistakes done by mutual fund investor !!
1)Never makes a proper financial planning according to their future requirements & goals .
Solution :- Always do a financial planning before investment.So that you can also set target oriented returns.
2)Never discuss with spouse before making financial goals and planning.
Solution :-You are planning just not for you but for your family also. So better take advice and consult each other and then mutually finalise a goals for your family and then stick to it.
3)Bottleneck their expenses and savings
Solution :-Always plan properly how much you can save and invest .
4)Never keeps Emergency funds .
Solution :-Always keep emergency funds for your emergency needs.Remember unwanted situations never calls before coming.
5)Try to time the market so keep waiting for market to come down .
Solution :-You can never time a market,so as a mutual fund investor ,start from a day you think as you looks for long term.
6)Investor invest for long term but worry about market in short term.
Solution :-Long term means more than 5 years ,so give your investment adequate time to grow.Lets market rise with all its ups & downs.
7)Investor don’t realize their risk appetite and products risk involvement.
Solution :-1st realize your risk capacity and learn proper about mutual fund types ,every mutual funds have different risk involvement and returns.
7)Don’t diversify the mutual fund portfolio,invest all amount in particular type of mutual fund and in particular sector. Like someone invest all amount in large cap mutual fund or thematic fund etc.
Solution :-Always diversify your portfolio ,it means never invest in one particular mutual fund ,invest in at least 3 to 4 different sector funds,like can keep 1 large cap, 1 midcap ,1 small cap or multicap . And as per requirement can have other different types of funds.
8) Invest all their mutual fund investment in one fund house .
Solution :-Even if you are investing in 4 different types of funds but all funds are from same fund house company then also you taking unnecessary risk.Better can diversify in few different fund house companies.
10) Puts all money in mutual fund only
Solution :-No doubt mutual fund is the best product to achieve you goals but remember other products are also not bad.Every financial products have its own importance. So when you do investment do investment in FD too ,which will act as emergency fund,also invest in term insurance too which will protect your family from unwanted situations.Also invest in your dream home too.
So when you going to invest i mutual funds keep all these points in mind ,you will do the best investment and will fulfill all your goals for your family .Also you can take advice of financial advisor ,to better plan for you. They are expertise and can help you to enhance your returns and you can be tension free about mistakes or market movements.