Mutual funds are considered an easy and convenient medium of investing in the stock market. But often this easy option leads investors to make big mistakes. Sometimes due to overconfidence and sometimes incomplete information, the portfolio does not grow as expected. If you are also wondering why you are not getting returns despite doing everything right, then it is possible that you may be unknowingly repeating some common mistakes. Come, let us understand them here.
Ignoring risk appetite and goals
Investing without setting clear financial goals or understanding your risk appetite can lead to problems in the future. Suppose you are creating a fund for your child’s higher education, this is a long-term goal – hence patience and consistent investment is necessary. However, if your risk appetite is low, then choosing a small cap fund based only on recent high returns can be harmful.
What to do?
Assess your risk profile and clear goals before investing.
imitating others
It is not wise to invest money in the same fund if you see good returns from an investor you know or see on social media. Every person’s income, responsibilities, and risk tolerance are different.
What to do?
Create a portfolio as per your financial situation and needs.
Influenced by recent returns
Often investors take decisions based on the excellent performance of the last one year. This is called ‘recency bias’. But market performance is not the same every year.
What to do?
According to sbisecurities, analyze the performance for at least 5 years or more. Also understand the strategy and risk level of the fund.
trying to time the market
Buying when the market is falling and selling when it is rising sounds good, but it is extremely difficult to do this successfully consistently. It is almost impossible to accurately predict market movements.
What to do?
Focus on ‘time in the market’ rather than market timing. Regular investment through SIP can be helpful in this direction.
panic withdrawal
Market fluctuations are normal. But many investors get nervous after seeing the decline and withdraw their investments in a hurry, due to which they do not get the benefit of possible recovery.
What to do?
Instead of panicking, review your goals and risk profile. If your strategy is right, continue investing.
hold excess funds
Diversification is important, but keeping more funds than necessary can also be harmful. Holding multiple funds of the same category leads to repetition of similar stocks in the portfolio, impacting returns.
What to do?
Choose fewer but better funds. Focus on quality, not quantity.
not reviewing portfolio
Many investors assume that once they invest, there is no need to do anything. While it is important to review from time to time, so that the portfolio can be balanced if needed.
What to do?
Review your investments at regular intervals and re-balancing as per the goal.
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