I hope you are one of the smart ones. The ones who know that the one of the best way to build wealth over a long period of time is by investing in mutual funds. You pool in however much you can with other investors, and let your fund manager help you build a strong portfolio.
So you are? Good. But are you one of the smarter ones? The ones who don’t make these outrageous mistakes. Read on if you’re wondering how many of these mistakes you’ve made in choosing, investing, and earning profit.
- Stage 1: Deciding why you are investing
- Mistake: Not having a goal
The selection of mutual funds should be based on financial goals and not just ‘to make money’! What do you intend to use this money for? Higher education? World travel? Retirement? Your child’s education? If you invest without a plan you may end up investing in incorrect or unwanted securities, which may not give you the funding you need to make a dream or two come true.
Plus, having a goal would also help you with sticking to your plans by ensuring that you don’t withdraw prematurely. This is even more important because letting go of early by prematurely withdrawing money may not be the best move for your future.
- Stage 2: Choosing an investment
- Mistake: Not understanding risk
Profits and risks are two sides of any investment and you should consider both before you invest. When you are young, your capacity for risk is higher, so you shouldn’t just stick to debt funds and shy away from investing in riskier, equity funds. On the other hands, there are investors whose minds are clouded by the prospects of high profit to the point that they lose all hope if they come across one. If only they had taken a minute to understand exactly what these risks are, and how they can be managed successfully by staying investing for the long haul, they would’ve been just fine!
- Stage 3: Getting started with a mutual fund
- Mistake: Waiting too long
There is a misconception that investing in mutual funds requires you to save up for a few years so you actually “have something to invest”. But in truth, you can invest as little as Rs. 500 a month in a mutual fund. You can do this with Systematic Investment Plan, a type of Mutual Fund facility that lets you invest small sums periodically rather than one large sum one time. As the graph1shows, SIPs help in earning reasonable profits in the long run.
- Stage 4: Managing Mutual Funds
- Mistake: Panicking
Let’s not forget Investment 101. Buy low – sell high. It’s as simple as that. Many investors do the exact opposite; they invest when the market is up and start pulling out when it hits a snag. However, these momentary ups and downs rarely affect long-time investments. In fact, successful investors buy stocks during these drops for lesser amounts and sell them when the stock prices go up.
What makes Mutual Fund such a success among Indian investors is that they don’t require you to know much about investing. You have a dedicated fund manager for each scheme, who is an expert in that regard and who takes the complication and head-ache out of money management.
Thus, you should clear all your doubts and become more knowledgeable about your investments as well as markets. This way you can be calmer about market volatility too. Once you understand exactly how a fund manager does his/her job, you will truly begin to enjoy the ease of living.
The simple truth is that mutual funds are not supposed to be a complicated investment, so don’t try to make it one. Just follow simple rules, keep clear of basic blunders and you’ll be fine.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.