Mutual fund schemes and things to avoid in investment

Mutual fund is a way of investing one’s savings into funds that goes into various assets and categories, depending on the choice made by the investor. It is an investment vehicle, which is professionally managed and offer risk diversification. Mutual Fund schemes are a good investment option for the common man as they are accessible, affordable and can be started with a small amount.  

There are various types of mutual fund schemes available - Equity Funds, debt funds and hybrid funds. The confusion in choice, generally lies in the type of equity or debt fund to be selected, the time period of investment and the goal which one is working towards. All these questions are rather pieces of the same puzzle which need to be selected carefully, after research, in order to give you the perfect picture. The major reason why people invest in mutual funds is to create wealth. However, investor should avoid some common investing mistakes as given below -

Ignoring one’s risk profile - One must make investments that suit their risk profile. If you are a high risk taker, you should go for equity funds and if you are low risk taker, then opt for debt funds. If you risk appetite is moderate, different type of hybrid funds can help.

Ignoring occasional portfolio review - The responsibility of an investor does not end after making an investment. One must review and track the investments periodically to ensure they are performing as expected. If not, they must be replaced after consulting a mutual fund advisor. If followed on a regular basis, one can not only keep a track of the performance of mutual fund schemes, but also weed out the underperformers.

Investing in Systematic Investment Plan for a short term - The longer one invests for, the higher will be the returns, especially from equity mutual funds. A common mistake made by investors is to simply stop their systematic investment plan when the fund does not perform as expected. Well, markets have their highs and lows due to which the schemes might not perform well all the time. One needs to understand that continuing their SIPs for a longer period yields better results. If one panics from market lows and stops an ongoing systematic investment plan, the investor may suffer losses.

Insufficient research - Research undertaken before mutual fund investing can make or break your investment choices in the market. One must know the type of mutual fund schemes available, the fund managers associated with it, financial goals, the performance of the fund in the last 5-10 years and whether it could beat the category and benchmarks returns consistently, etc. Most importantly, one must be aware of the historical returns of the mutual fund scheme, to have a rough idea of the future returns and whether it is in line with their financial goals. In such cases, one can also use financial calculators such as the systematic investment plan calculator, in order to make more informed decisions.

In this read, we understood in detail, types of mutual fund schemes and what to avoid while investing in them. Mutual fund schemes are definitely one of the best investment options available which an investor can consider for achieving their desired financial goals over a period of time.