Investing in mutual funds is always a risky proposition. Sure, you can make a lot of money out of the investment, but you may also lose a considerable amount in the process. However, there are some mistakes that you, as an investor, should learn to avoid. Here are the top 5 common mistakes that investors make in case of mutual fund investment.
1. Think long-term
Do not invest in mutual funds if you are looking for a short-term gain. The market may be quite favourable at the start of the year, but it may deteriorate by the end of the same fiscal year. If you want to invest in mutual funds, you should be prepared to deal with the volatility of the market. Invest for at least 5 years if you really want to make profits on your investment.
2. Avoid one-year return plans
Some mutual funds focus on short-term returns, which may sound exciting and beneficial to inexperienced investors. This is why most people invest in these one-year mutual funds. However, such plans mostly involve obscure schemes, which do not succeed in the market. By the time investors learn from their mistakes, it is already too late for them to back out.
3. Consider the risks
Some mutual fund investment options offer a high rate of return in a given financial year. This may encourage investors to get on board with such a scheme, but experienced investors know that such a scheme may not perform as well in the next financial year. In fact, the rate of return may vary greatly from a given year to the next. So, investors should consider the risks involved with investing in a particular mutual fund. Check whether you are capable of taking such risks.
4. High ELSS investment
Equity Linked Savings Scheme or ELSS is a great choice for first-time investors. However, you should know the exact amount to be invested in the same. The Government of India allows a tax deduction of up to Rs. 1.5 lakhs on the investment. However, most people invest more than Rs. 1.5 lakhs in ELSS in the hopes of greater tax exemptions. This extra investment is completely useless as you won't get more than the Rs. 1.5 lakhs in tax exemptions.
5. Ignore the noise
If you have taken an informed decision of investing in a particular mutual fund, stay away from the chatter and predictions for the scheme. Paying attention to any such analysis will make you unsure about your investment, which may give you great returns upon maturity.
If you are a new investor in the field of mutual funds, try to follow the above-mentioned tips to get the best results.
1. Think long-term
Do not invest in mutual funds if you are looking for a short-term gain. The market may be quite favourable at the start of the year, but it may deteriorate by the end of the same fiscal year. If you want to invest in mutual funds, you should be prepared to deal with the volatility of the market. Invest for at least 5 years if you really want to make profits on your investment.
2. Avoid one-year return plans
Some mutual funds focus on short-term returns, which may sound exciting and beneficial to inexperienced investors. This is why most people invest in these one-year mutual funds. However, such plans mostly involve obscure schemes, which do not succeed in the market. By the time investors learn from their mistakes, it is already too late for them to back out.
3. Consider the risks
Some mutual fund investment options offer a high rate of return in a given financial year. This may encourage investors to get on board with such a scheme, but experienced investors know that such a scheme may not perform as well in the next financial year. In fact, the rate of return may vary greatly from a given year to the next. So, investors should consider the risks involved with investing in a particular mutual fund. Check whether you are capable of taking such risks.
4. High ELSS investment
Equity Linked Savings Scheme or ELSS is a great choice for first-time investors. However, you should know the exact amount to be invested in the same. The Government of India allows a tax deduction of up to Rs. 1.5 lakhs on the investment. However, most people invest more than Rs. 1.5 lakhs in ELSS in the hopes of greater tax exemptions. This extra investment is completely useless as you won't get more than the Rs. 1.5 lakhs in tax exemptions.
5. Ignore the noise
If you have taken an informed decision of investing in a particular mutual fund, stay away from the chatter and predictions for the scheme. Paying attention to any such analysis will make you unsure about your investment, which may give you great returns upon maturity.
If you are a new investor in the field of mutual funds, try to follow the above-mentioned tips to get the best results.
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