Avoid Dreadful Mistakes While Investing in Mutual Funds


Every day we see advertisements in newspapers, magazines, reservations, television and the Internet, and even in trains, buses and subways inviting us to invest in mutual funds.

But before investing, you have to to know which mistakes to avoid. Knowing them will facilitate your investment and allow you to help you reach your destination or investment goal.

Let us look at these 6 mistakes to avoid

1. Investing without a goal or a financial plan

Investing without a goal, it is like running without an arrival line.

This is the most basic. Like the first stone of a building. It is important to think and plan to achieve a financial goal.

Example: A 24-year-old who has just started work may be aiming to buy a car or house after a few years OR may also aim to save money for his marriage, then the children's education expenses, as well as the funding of their school and their college. expenses OR may have the purpose of saving money for his / her retirement

Whatever the objective, it is important to plan and allocate funds according to different objectives.

2 Invest without a budget

Investing without a budget, it's like flying a plane without gas gauge.

If you do not balance your income and expenses, you'll never save enough to invest, which is a sure-fire way to crash, because you'll never know when you're running out of fuel.

List your net monthly income, as well as items and the amount you spend each month. You must establish a budget plan that ensures you do not spend too much by being emotional and impulsive.

Experts call this a "Cash Flow Plan" that will record each element of cash inflows and outflows.

You can do this by noting in a log or even entering the details in Microsoft Excel on your PC.

Some people even struggle to save 10% of their net income because they are impulsive, emotional and enjoy living with comfort, while others save more than 50% of their net income because They are disciplined, conservative, and spend intelligently only when necessary on the most basic needs.

You must decide the level of savings with which you are comfortable, according to your goal.

In addition to monthly savings, every time you receive a lump sum such as bonuses, gifts, inheritance, lottery, etc., you must also invest that.

Keep in mind, however, that the more you save today, the better your future will be, as the savings and investment in mutual funds will increase and grow in the future. over time.

So it's very important to make and Respect the budget each month with discipline. Only this will help you achieve your long-term goals.

3 Invest without understanding your ability to take risks

Investing without knowing your ability to take risks, is like buying a garment without knowing your size.

You do not know if it is the right size for you and if you will be comfortable wearing it.

A general rule is that the money that do not need for the next five years or more can be invested in equity mutual funds, while the money you may need over the next five years should be invested in debt mutual funds and the money you may need in the next six months should be invested in mutual funds. monetary or liquid investments

Although this is a general rule, it is always recommended to take risk profiling test that will scientifically highlight your ability to take risks.

Usually, these tests do not take more than fifteen minutes and are available from any licensed financial planner or a mutual fund distributor / dealer.

The result of this test is that you will learn about your exact risk profile.

(The four basic types of risk profiles are conservative, conservative, moderate and aggressive)

Each risk profile will tell you the percentage of your total money that should be invested in stocks, debt, cash and gold.

4 Invest in mutual funds without doing homework

Investing in mutual funds without doing homework is like trying to drive a car without a driver's license.

"Never buy something without doing your homework" is a generally accepted philosophy. This is also true for mutual funds.

Once you have defined your goals, your monthly investment budget and your risk profile, you must then determine which mutual fund plans are right for you.

For this, you can contact your financial planner or your mutual fund dealer / dealer who will advise you on the selection of long-term, high-performance plans.

You should not allocate your investments in more than 3 or 4 performing funds. As this will increase your paperwork and track effort without increasing your returns (example: if you invest 20 000 Rs per month, spread it among the 3 or 4 best funds)

5 Do not do SIP in mutual funds

This is another major mistake that is completely avoidable.

Equity, Balancing and Tax Saving Systems (ELSS) hold an equity portfolio and share prices are never constant and increase or decrease depending on various economic factors and market specific to the company.

As such, mutual fund prices (referred to as net asset values) continue to rise or fall.

The best and only sound method of investing in mutual funds over the long term is the SIP (Systematic Investment Plan) pathway.

The advantage is that when the stocks and NAVs of the funds are down, you get more shares for the same amount of investment and conversely, when the stocks and NAVs of the funds are down, you get lower shares for the same amount of investment.

Therefore, in the long run, you get an average price and you will avoid, emotionally, the option to invest all your money only at a particular constant price.

Another benefit is that since you earn income every month, the SIP facility ensures that a fixed amount of money is debited from your bank account, on a specific date of your choice, each month.

This will save you from having to invest every month because the SIP will put your investment on autopilot.

So win, save, invest and finally … Spend a little … every month !!

Many people do the opposite … they win, spend and finally … invest a little … every month!

What do you think is the right approach to building your future?

6. Do not have the long term in mind and be impatient.

This is a mistake that a lot of investors make. This is more related to their temperament and personality than any other factor.

Many investors are not up to the task because they regularly monitor the net asset value of the stock markets and mutual funds and remain confused about their decisions.

It is strongly recommended that, just like your goals, you should also allow enough time for your mutual fund investments to earn you income. This means that when you invest in equity mutual funds through the SIP channel, you must think about your goals in 10, 20 or even 30 years and you must be patient with your investments.

History has shown that in the long run, Indian stock markets have generated returns ranging from 13% to 16% pa (The period for this is the BSE Sensex movement of 1978, the year where he was 100 years old to January 2016, when he is around 24,000)

However, it should be noted that returns are not guaranteed and may vary depending on market movements.

Since you have a long-term goal in mind, short-term market movements should not affect you and you must remain calm and patient. Patience always pays.

Start your mutual fund SIP today !!!

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