Do you invest in mutual funds? Are You Making These 5 Serious Mistakes?

Investing in mutual funds is considered a good way to achieve long-term financial goals and build substantial capital. They have the power to deliver returns that beat inflation. Many times people have a very bad experience with investing in mutual funds. People make some mistakes in mutual fund investment due to which they do not get the desired returns.

Investing without understanding the scheme

Do not invest without understanding the mutual fund scheme or product. For example, equity mutual funds are for the long term, while investors generally want good returns in the short term. In such a situation, investing in equity mutual funds can lead to losses. It makes more sense to take a long-term investment approach in mutual funds. Especially when your goal is to raise big capital. The investment should be kept for at least 5 to 7 years. Investing in the long run can be more rewarding.

Not investing the right amount

Random investments are common in mutual funds. Random investing means accumulating any amount of your choice without any financial goal. In such a case, the amount invested may not yield the expected returns. For example, if you have a target of accumulating Rs 1 crore in 20 years and are investing Rs 1000 every month, you will not achieve your target. To accumulate Rs 1 crore, your monthly SIP should be around Rs 10 thousand, assuming a return of 12 percent.

Do not redeem repeatedly.

People who invest in mutual funds often make redemptions, i.e. withdraw money, from the mutual fund when required. With frequent withdrawals from mutual funds, one does not get the full benefit of compounding returns on the investment, as the benefit will not be available on the redemption amount. The result is that you are not able to meet your financial goals with the units purchased after redemption. Such actions harm your financial planning.

Fear of market fluctuations

There is a risk of volatility in the stock market. Fearing this, many people withdraw money from mutual funds or stop investing. Market downturns actually provide an opportunity for long-term wealth creation. By continuing to invest during a downturn, you will get more units for the same amount as the cost per unit will decrease. This will increase your profits when the market rises.

Investing without a goal or plan

Investing without a financial goal is probably the biggest mistake. Every penny invested should have a financial purpose. It helps investors track the progress of their investment journey. Everyone should decide on their short, medium and long term financial goals.

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