Mistakes for an investor in mutual funds to avoid

Mistakes for an investor in mutual funds to avoid

The market could have touched upon historical peaks this current season. But this should not be the only reason why you should end up investing in mutual fund schemes. Just take your eyes from a market peak and figure out the reasons why you are investing? If your answer is to achieve a long term financial objective then you should proceed. Keep in mind that you should only invest in mutual funds if you have an investment horizon of 5 to 7 years. In addition you should have an appetite to withstand volatility of the market. If you fulfil such criteria then you should make a move and end up investing in mutual funds. There is a direct mutual fund making your task a lot easier.

Schemes should not be chosen based on single year returns

Some investors end up focusing on important market indices, whereas other investors focus on short term returns. It is a common sight for an investor to pick a mutual fund based on performance of a single year. Sadly investors realize their mistake when they end up discussing about mutual funds with an expert on an online forum. They feel that to get out of this scheme might involve upfront costs. An exit load is levied once you have to exit the scheme. If you go on to sell equity investments before a year, it is mandatory to pay short term capital gains up to 15 %.

Give due importance to your risk profile

New investors end up betting on small cap schemes. They feel this is going to make them rich quickly, but in no way it means that this stellar performance is likely to be repeated each year. Even if it does they carry a high degree of risk and are suggested for an investor with a high risk appetite. For a conservative investor they might be overwhelmed by the occasion and exit in a hurry. No need to be adventure prone and think you can tolerate investments with a high risk capacity. Go on to assess your funds and choose one based on the levels of your risk tolerance.

Do not commit to invest in ELSS rather than required sum of money

ELSS funds work out to be ideal for a first time investor. No way it means that you should end up your entire funds in them as whatever you invest the maximum amount of rebate is Rs 1.5 lakhs. Even if you go on to invest a higher sum this is the maximum possible rebate under section 80 C of the Income tax act. It is suggested that you invest extra money in other funds so as to improve your risk profile and built on your portfolio.

To conclude pay less heed to terms like book profits that could be really confusing for a first time investor. Just ignore and do follow the tips that these tips are not meant for a first time investor, though for an existing investor it would be of help.

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