On the occasion of Diwali, a five-day festival that starts with Dhanteras, people usually buy gold and silver to mark auspiciousness and attract blessings from Goddess Lakshmi. With changing times, gold and silver investment methods have also changed and people also consider gold mutual funds as a good option. Investing in gold funds offers two advantages: first, you invest in gold while still maintaining tradition, and second, you don’t have to worry about storage or security because this investment is completely digital.
Over the past one year, gold ETFs have delivered returns of up to 65% and silver funds have given up to 82%, mirroring skyrocketing prices of the yellow metals in physical form. Physical gold and silver prices have seen a massive 69% and 75% rise. This surge in prices is the most talked-about among investors this Diwali. However, investors must remember that opportunities aren’t limited to only gold and silver and their ETFs, they also have other category fund options, such as equity, hybrid, or debt funds. But no matter which category you invest in, you must be aware of some common mistakes investors commit so that you stay away from those when investing this Diwali.
So, if you’re considering investing in mutual funds this Diwali, avoid these 5 costly mistakes:
1. Don’t invest based solely on past returns
Many investors invest in funds based on a fund’s past performance. But a fund that has excelled in the past year doesn’t necessarily continue to perform as well. Especially after the recent surge in gold and silver funds, it’s important to understand that prices will fluctuate. Therefore, before investing in any fund, understand its long-term strategy and risk profile.
2. Don’t rely solely on a single asset class
It is considered auspicious to invest in gold and silver on Diwali, but that doesn’t mean you should invest all your money in gold or silver funds. At any time, your portfolio should be a diversified one, maintaining a balance between different asset classes, such as equity, debt, and gold, in your portfolio. This reduces risk and ensures stable returns.
3. Don’t invest from a short-term perspective
Recent returns in gold funds have been excellent, but mutual funds should always be viewed from a long-term investment perspective. Many investors jump into bullish momentum and exit at minor dips. Doing so can result in missing out on good long-term returns. Therefore, invest with planning and over time.
4. Not choosing the right fund and the right SIP plan
Many people start SIPs in any fund without having a full knowledge of the product. Everyone’s risk tolerance is different. If you want less risk, gold ETFs or conservative hybrid funds may be good options. However, if your investment horizon is longer and you want higher returns, you can consider equity or multi-asset funds.
5. Ignoring taxes and expenses
When investing in mutual funds, it’s important to keep expense ratios and capital gains taxes in mind. Long-term capital gains tax on gold and silver funds is applicable after three years. This means that if you withdraw money before three years, the tax burden may increase. Therefore, consider tax calculations when planning your investment.
The bottom line: Invest wisely, not in a hurry.
Diwali is a time for investments and new financial resolutions. If you’re thinking of investing in mutual funds, invest wisely. Gold and silver funds are currently in the news, but every investor’s needs and risk profile are different. Choose the right fund based on your needs, goals, and time horizon.
Remember, a good investment is one that gives you peace of mind, not the burden of uncertainty. Invest wisely this Diwali and further enhance your financial well-being.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.