8 mistakes to avoid while investing in Mutual Funds

If you have decided to invest in a Mutual Fund, there is no denying the fact that you have made the right financial choice. You have chosen a path that ensures long-term benefits for you and your family. But are you taking the right call while investing in a Mutual Fund? Read on to know whether you are making any of the following mistakes.

1. Investments made without objective

You need to specify the financial objective before deciding about the investment portfolio. The financial objective is also related to the investment time period. Your objective can be getting a new car, buying an apartment after a certain time, child’s education, saving taxes and so on.

2. Comparing funds

Mutual Funds are categorised basis the structure, risk, investment horizon, investment objectives and others. For instance, if you want to invest in a Small-cap Fund, you cannot compare its performance with a Large-cap Fund. As per SEBI, Small-cap Mutual Funds are risky as they invest in companies that are ranked below 250 in terms of market capitalisation. On the other hand large-cap funds are less risky. These invest in the top 100 lists of companies according to market capitalisation. The comparison should be made with the right peers and right benchmark.

3. Choosing funds without assessing their risk profile

Investment in a Mutual Fund scheme should be made as per your own risk profile. At ICICI Bank, risk profiling is classified into risk averse, conservative, balanced, growth and aggressive. For instance, individuals with low-risk profile and long-term financial goals will find a balanced portfolio with a profitable mix of debt and equity instruments more suitable. On the other hand, someone who wants to maximise returns and is ready for high exposure to risk can opt for equities that are suitable for aggressive investors.

4. Lack of research on Mutual Funds

Be it their associated risk or general interest in Mutual Funds, researching for details is now easier thanks to internet accessibility. However, it is crucial to get all the pieces of information distilled in a way that can serve you the best. So research things like expense ratio, asset size, historical returns, exit load and tax on Mutual Funds. You can visit ICICI Bank Mutual funds services to know more.

5 Imitating other investor’s strategies

Consider this, you have read a book about a successful investor’s story and you decide to imitate the investor’s investment strategy. You decide to invest in Mutual Funds that are mentioned in his portfolio because he has gained good returns through them. There’s nothing wrong in imitating what’s right, but in the case of Mutual Fund investments there are a lot of faults if you aren’t doing it as per your risk and preferences.

6. Not diversifying the portfolio

If you are putting your funds in a single company or stock and it doesn’t perform well, you will gain no profit. To get good returns on Mutual Funds, diversification is key. It helps to spread out your risk. So even if some funds are going down, others can gain and eliminate your loss. If you choose ICICI Bank Mutual Fund services under “Investment Suggestions”, we will help you build a diversified portfolio that minimises risks and maximises returns. 

7. Keeping unrealistic expectations from the fund

Beginners typically look for the highest returns from their investments. They want the best-performing fund to continue the performance trend. But it’s wrong to keep such unrealistic expectations from a fund. Mutual Funds are not meant to make anyone rich in months. Rather, they are meant to ensure long-term financial wealth for an individual.

8. Reacting under panic

In case of a market crash, many investors exit simply as a panic reaction. As they fear losing their principal amount, they try to sell the Mutual Fund before they reach their goals. An investor should monitor a fund’s performance, overall market performance, current financial, economic and political scenarios, etc. before deciding to sell. 

Avoid these common pitfalls and make the most of your Mutual Fund investments. Once you have invested in a specific Mutual Fund scheme, you must analyse its performance every now and then. Allow sufficient time to your investments to reap their rewards. Expert advice and proper guidance are what you need when you are a beginner. Get in touch with ICICI Bank today to know more about Mutual Fund investments. Visit: https://www.icicibank.com/Personal-Banking/investments/mutual-funds/index.page to know more & start investing.

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