Common mistakes that Mutual fund Investors make


Mutual Funds as a form of investment instrument has gained prominence in recent times.

This can be attested by both, the number of new investors as well as the ballooning AUM.

Considering mutual funds is still at a novice stage, it is only natural for investors to be still at a learning stage.

Mistakes therefore should not come across as an aberration, listed below are some very common mistakes that investors commit.

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Having No Goals

Investing without having specific goals is quite common and a recipe for disaster.

When you have set goals, you know where you are headed and are motivated to stay the course despite the ups and downs that accompanies an equity investor.

You are motivated by reaching your goals and not by greed.

Having goals also help in other aspects of life, for eg. If you are investing for your child’s higher education then you do not need to worry about that specific aspect at least while worrying about other life goals like purchasing a house, retirement, etc.

Another helpful part about having goals is that it helps in constructing a portfolio, longer the time horizon, higher the risker appetite and if shorter the time then lower the risk appetite.

This helps in clarifying whether you need to look at equity, debt or hybrid and within these categories too, what type of funds depending on the time horizon.


Click Here to read why you must increase your SIPs annually 


Unfortunately ‘Profit Booking’ as a concept along with redeeming for non- emergency reasons is quite rampant.

According to a study by Axis Mutual Fund 48.70% of equity investors redeem their portfolio within 2 years or less.

This basically sheds light on the fact that most investors are basically traders in the garb of investors.

As previously mentioned you should have goals when investing and that is what should keep you motivated, not short term profits.

If you cannot stay put for the course and delay gratification then maybe equity investing is not your cup of tea.


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Unrealistic Returns

The first step in risk assessment is understanding your ability to withstand negative periods of investing.

If at any given time you cannot hold your ground if your portfolio takes a -50% dive then maybe you need to revisit your idea of equity investing.

Post covid the equity markets have been on the up and ever rising but they too will have moments of uncertainty and turmoil.

This is not a predication but rather the nature of equity markets.

Taking into account all the above points it is only prudent that you keep your expectations realistic when it comes to equity returns, as long as your portfolio is able to beat inflation and traditional fixed income instruments then you are on the right path.

One must be optimistic when it comes to equity investing and future growth but the optimism must be rooted to the ground at all times.


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.


Timing the market

You cannot time the market, no one can.

In case you ever encounter anyone stating anything to the contrary then you might want to take a run.

Often investors who in reality are short term traders make long term portfolio decisions based on short term events.

Investors have often been guilty of ceasing their sips when the markets are volatile with the intention of starting them again once the market stabilizes.

This defeats the very purpose of investing via sips in the first place.


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Chasing the star fund

No one fund or fund house stays permanently at the zenith with respect to returns.

The baton keeps on passing from one to another, this should not be interpreted as every fund or fund having the ability to possess the same.

Investors have often been guilty of chasing the in vogue fund, this can be attested  by the sudden surge in aum of the scheme.

The fallacy of such behavior is that you would end up investing and redeeming frequently cause as previously mentioned no one fund stays at the top permanently.

This would go against the tenets of equity investing since you are constantly interfering in your portfolio which also affects the compounding process.

Another interesting facet of such behaviour is investors expecting the new fund to go even further higher once they have invested, conveniently forgetting that equity investing is not linear in practice.


Mistakes are a part of life and equity investing is no different.

What is different though is that mistakes in equity investing can be brutal to the point that a very negative experience early might deter you from investing again for a very long time or maybe even forever.

Therefore is better to avoid certain mistakes than to learn from them.

Maybe trying being wise before an experience for a change.

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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.  
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