5 common mistakes mutual fund investors should avoid this Diwali

During this festive time of the year, advertisements encourage more spending through sales and discounts, while recommendations on investing in gold and specific stocks for the upcoming Samvat year are also common. However, analysis of past data shows no clear evidence that investing during this time delivers better or worse returns compared to any other time of the year. Therefore, investment strategies in stocks, mutual funds, or gold should be planned with this in mind.

For individuals receiving a performance bonus or incentive at Diwali, it is a good time to invest most of it and spend a portion on luxuries that may make the family happy.

Also Read | With up to 36% average return since last Diwali, this Bandhan fund tops smallcap MF returns chart

A mutual fund expert mentioned five common mistakes that investors make while investing. “Investors make decisions solely based on past returns and chase returns without any plan. They withdraw their investments because of the market volatility and try to time the market,” said Priti Rathi Gupta, Founder of LXME.

Here are the common mistakes mutual fund investors make:

1. Waiting for the “right” time to invest or timing the market – No one can predict the markets. Instead, the better idea is to focus on your goals and get started. The best time to begin was yesterday, and the next best time is today. Don’t wait! Start now and leverage the magic of compounding for long-term growth.Chasing returns without a plan – While it’s natural to want the best possible profit, but focusing solely on returns without a clear plan is like sailing without a destination. Instead, begin by defining your goal and then narrowing down on what products are best suited to achieve it.
2. Withdrawing their investments because of market volatility – For example, in the current market situation, if we look at Nifty50, the index is down by around 8% from its all-time high. Now, as a long-term investor, should this worry you? No! But this is what happens usually, a common investor gets worried and redeems their money. But a smart investor keeps patience, stays invested, and considers the market dips as an opportunity to add more to the investments for the long term.
3. Investing in one asset class only – For example, gold as an asset class has seen a significant rally in recent times with prices hovering around 80,000, investors often get tempted to park all their money into one asset class, for example, here, it’s gold. But is it the right way? Absolutely, not! The key is to diversify your money across asset classes to manage the risk and returns.
4. Making decisions solely based on past returns – It’s easy to get attracted by funds that have performed well in the past, but relying solely on historical/past returns could be misleading. Past performance does not guarantee future returns as market conditions and economic factors constantly evolve. Instead, a better way is to also look at the fund’s underlying strategy, consistency and its alignment with your financial goals.
5. Mutual funds are a popular investment option among both new and experienced investors due to their benefits such as diversification, professional management, and flexibility. However, beginners in mutual fund investing often make mistakes that can affect their returns and financial goals.

Investors just chase returns after looking at recent stellar performance and make investment decisions without aligning it with their risk appetite, investment horizon, and goals.

Also Read | Diwali performance: Sectoral mutual funds deliver up to 64% returns, defence leads

According to the expert, investors should first identify their goals, risk appetite, and investment horizon and then filter out the schemes based on different parameters such as performance against peers, fund house track record, AUM, and many more. They should also follow a disciplined approach.“The first step before picking any investment option is to identify your goal, your time horizon, and your risk appetite. Once you have this, you can narrow down to the best-suited mutual fund scheme by filtering it out on various parameters like performance against benchmark, performance against peers, performance consistency, AMC track record, the AUM that the scheme is managing, fund manager’s experience, and many more!,” recommended Priti Rathi Gupta.

“Lastly, always remember, that with a clear plan, disciplined approach, and the right risk management, you’ll not only achieve your financial goals, but you’ll do so with greater confidence and peace of mind,” she added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times).

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.