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With this Monday article, I am dragging your attention to the biggest mutual fund mistakes frequently happening from investors and I have realized most of the time. I thought it would be a nice idea if I share the same here for the readers.
1. Not reading the KYI or Key Information Memorandum properly. KYI is the best place to acquire required knowledge about a mutual fund. Each application form coming with a KYI. KYI should have all required information like fund type, investment focus, fund manager etc.. As an investor, KYI should be your starting point to invest in any mutual funds.
2. Not knowing the fund – Mutual fund world have number of funds with various types. Investing without proper knowledge generally lead an investor to the investment failure. If you are a mutual fund investor, you should have good awareness on the type of funds and its focuses.
3. No fund manager background check– Fund manager has very big role to decides the success or failure of a mutual fund. Investors should check to know the background of fund manager to know his/her experience, capacity and ability as a manager. Here is an article to know more about the same.
4. Not having proper investment objectives and goals– This is one of the main point of failure with most of the mutual fund investors. There are various funds available in the market which designed to suite for various goals, different returns and time periods. An investor should determine his goals and need to select the right mix of funds to fulfill these goals.
5. No idea on the investing time period – This may lead investors to not get proper result from the mutual fund investments. For an example, if you select equity focused diversified fund for next 1 or 3 years but the fund really required an investment time frame of minimum 5 years, of course, your return will be pathetic.
6. Not having disciplined investment approach – Mutual funds are best to invest using Systematic Investment Plan or SIP, than bulk investments. Error from investors generally occurring by investing bulk money to mutual funds when the NAV of the fund is less. Through investing systematically, you are reducing the money losing risk and getting maximum benifit from the market volatility.
7. Relying on past performance data – A major mistakes from most of the investors are relying on the past or present performance of a fund to invest. Remember, past performance or present performance of a fund is not a guarantee to the future performance and returns. As there is no reliable methods available to guarantee the future performance of a fund, an investor required to identify the the long term consistent return of a fund as a criteria to invest.
8. Too many funds in the portfolio are another error happening from investors. This may lead to loose concentration and/or not able to monitor each and every funds. Pick selected funds carefully and invest on it consistently.
9. Few funds in the portfolio – Some one looks like fund collector as per the above points and some other Permitting just two funds to determine their financial fortunes. Certainly it is a bad idea. A careful selection and consistent investment on right mix of funds will be great to take maximum advantages.
10. Focusing only to the sector funds – Generally investors showing interest to the sectors that booming fast. That is the reason new sector funds starting with huge corpuses receiving from investors. Never jump into these mistakes. Instead, diversify your mutual fund portfolio by adding carefully selected best funds from different groups.
Avoid the above mistakes to invest wisely. Know what you are doing and why you are doing. Select right mix of funds from various sectors but not few or huge numbers. Invest consistently with discipline. Best wishes.