Mutual fund investment mistakes to avoid


Mutual fund investment as a form of investment has seen its acceptance levels grow, although the numbers are still low.

Like with anything else, managing your mutual fund investment is also prone to errors.

Do keep in mind that every investor, even the ones that seem very successful have all had their fair share of mistakes and no one is perfect.

The aim should be to keep mistakes as low as possible, keep the basics clear and if possible then to also be able to learn from others mistakes rather than experiencing them yourself.

mutual fund portfolio

What are some mistakes mutual fund investors must avoid?


Imitating someone else

Very often you would be tempted to imitate someone else’s mutual fund portfolio, this is more so the case if that portfolio has recently done very well (open to interpretation).

This would be done without any regard for your own goals, time horizon, risk appetite, etc.

But this is a very dangerous and self sabotaging approach because two people cannot have the same risk appetite so a deeper risk analysis is required.

A mutual fund portfolio needs to be personalized and the failure to do so has drastic implications in the form of exit load, taxes and loss of compounding benefits and so on.


Are you investing in the right mutual funds?

No professional advice

In a highly populated country like ours, opinions will always be aplenty and mutual funds are no exception to that.

It is one thing to receive unsolicited advice from family and relatives but with mutual funds recent trend suggests that investors also seek advice from strangers on social media who are no more qualified than them for mutual fund ‘advice’.

This never bodes well since the advice you receive, whether solicited or unsolicited has no accountability or qualification and you end up moving in and out of schemes based on differing advices you receive which in turn means higher taxes and exit load charges.

Mutual fund advice is not a one time thing, it is:

  1. Prior to investing
  2. While invested and
  3. How to redeem

So do the simple and sound thing of reaching out to a distributor/adviser for better handling of your mutual fund investment.

Be it wealth or health, only let the qualified professionals enlighten you.


Additional reading: Click Here to read more about how multi cap funds work

No periodic review

A mutual fund portfolio must be reviewed periodically, ideally once a year.

This review should be undertaken by a qualified professional or else it would be a futile exercise.

A periodic review helps to confirm if the goals and your mutual fund portfolio is still aligned and on track.

This is important because mutual funds could go through several changes like change in category of fund, restriction in amount, strategy, aum, etc.

It is not a given that you would need to alter your mutual fund portfolio due to reasons mentioned but you would need to review if any changes are warranted.

No risk profiling

Mutual fund investments are subject to market risks

This is often accompanied with most mutual fund related material and yet very rarely do investors dig deeper into this.

Every mutual fund scheme will have its own risks and the ability to withstand it will differ for each investor.

Then comes into the picture other factors such as time horizon, goals, mode of investment, etc.

Even an individual having all the same attributes as someone else can still have a different risk appetite, the personal in personal finance is of more weight than finance.


Over diversification

There is diversification and then there is over diversification.

The purpose behind diversification is to be able to diversify risks and amplify returns for your mutual fund investment.

More often than not investors make the grave mistake of over diversifying which brings along with itself its own set of problems.

Overlapping is one of them, you end up investing in the same set of stocks and strategy even though you may think otherwise merely because you invested in various mutual fund schemes.


Understanding a particular fund

Most investors are unable to understand a fund like it should be understood.

Unfortunately mutual fund schemes are judged merely on their returns, that too short term.

As much as your reasoning for investing in mutual funds is returns, that’s not how it works though.

For example a balanced advantage fund would most likely and ideally generate lower returns than say a mid cap fund.

In the same vein, a mid cap fund would be more volatile than a balanced advantage fund.

Also what you need to keep in mind is that more often than not even funds from the same category can have varying strategies and thereby varying returns.

A large & mid cap fund needs to necessarily invest a minimum of 35% each in large and mid cap stocks, the remaining 30% has no such restriction.

Every fund manager will decide where and how to invest the remaining 30% as per her own thinking which would bring about different returns and strategies among various large & mid cap funds even though they all belong to the same category and have the same mandate to follow.


Are you investing in the right mutual funds?

Diversification with same fund house

It is often seen and with empirical evidence to back it that various fund houses have garnered most of their aum during a very short specific period.

This short specific period is when most of their schemes must have outperformed their peers.

Recent example includes Parag Parikh mutual fund and Axis mutual fund whereas if we go further back then there is HDFC mutual fund and Mirae Asset mutual fund.

The issue with such an approach is that there is no inspection as to why all or most schemes of a particular fund house did so well during a very specific period.

The reason more often than not is due to the same strategy applied across all schemes of the fund house with exposure in the same set of stocks.

This is precisely what Axis mutual fund had implemented with its focused, flexi cap and bluechip fund all having more or less the same portfolio.

Therefore even though your mutual investment is spread across different schemes and therefore you believe you have achieved diversification, but in fact all that you have done is basically invested in the same set of stocks via different schemes.


Additional reading: Click Here to read about the overlapping issue with Mirae asset mutual fund schemes 

Investment versus trading

Investment requires a long term plan to achieve your goals, whereas trading does not.

Mutual fund investment has nothing to do with timing the market, on the contrary timing the market can prove hazardous to your mutual fund portfolio.

Trading is all about timing the market, knowing when to enter and exit the market.

More often than not investors make the silly mistake of trying to time the market, at times even with their sip investments which goes against the very fundamentals of starting a sip to begin with.


Not aligning with goals

Ideally your mutual fund investment should be aligned to life goals, either certain schemes to each goal or your complete portfolio to one goal.

Whether you have any goal or not, we all are going to retire at some point so retirement by default becomes a goal and that becomes all the more important considering the rising health expenses and gradual increase in life expectancy.

Having a goal helps you stay disciplined but more importantly it helps you see the bigger picture with regards to your mutual fund investment.

Goals help you stay calm when the markets are volatile because you know your goals are still far away and there is no need to panic by short term volatility.

High Returns is not a goal, it is a desire and personal finance is about goals and having a plan to achieve them and not about fulfilling desires.



Short term returns

Short term returns are a very bad indicator with regards to the suitability of a fund for you.

Past performances be it long term or short are neither indicator of future returns nor a guarantee of future returns.

It is important to analyze why a particular fund has impressive short term returns, it could either be the calls have played out well or a certain change in law or strategy has helped them.

No matter what the reason, short term returns should not be accorded much importance and should definitely not be acted upon.

Sadly though this is far from reality, many investors take the plunge into mutual fund schemes based on short term returns.


              It is natural for the markets to be volatile, mistakes are given like any other field but what is sad to note is that most mistakes with regards to mutual fund investment can be avoided if only a more sensible approach is undertaken rather than a hurried one by mutual fund investors.




For portfolio enquiriesemail us with your doubts at

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

Copyright © 2021  The Mutual Fund Guide, All rights reserved 

My Instagram