5 mistakes to avoid while investing in Mutual Funds

25 Jan 2021|

1 min read |

by ICICI Securities Team

Mutual funds have become an increasingly popular investment option, even among those who are unfamiliar with the stock market. This is because not only do they offer a higher return than many fixed income or other financial instruments, but you can also pick and choose the kind of returns you want vis a vis your risk appetite, investment time horizon and financial imperatives. And if you are new to the market, there’s always your friendly financial advisor who can help you understand debt, equity, balanced funds and other such stock market jargon.

However, whether you are novice or a veteran investor, there are certain things to keep in mind before you decide to invest in mutual funds. Here are five of them:

1. No clear financial goals or plans:

This essentially means you should not invest for the sake of investing because you want to save taxes, or because your friend/relative coaxed you to do so. It is only when you are perfectly clear about your own needs and goals, as well as your risk profile, that your financial advisor can suggest a portfolio for you

2. No budget planning:

Always be clear whether you can afford to fund your investments. This requires a deep dive into your monthly income and spending patterns and calculating the amount that you can spare for investments without burning a hole in your pocket or being unable to pay for a sudden emergency. Since savings fluctuate from person to person, it is very important to have a clear view of the amount you can afford to allocate for investments

3. Not knowing your risk profile:

Many people invest in mutual funds based on projected returns, without clearly understanding the risks involved. For instance, if you are risk averse, you should avoid investing in equity funds, which give better returns but are extremely volatile, particularly in the short term. Instead, you should consider debt funds, which offer lower returns but are relatively stable

4. Over diversifying your profile:

In order to mitigate risk through diversification, many people invest in too many funds. Having a large number of funds, however, increases the chances of having many underperforming funds in your portfolio. Also, each fund is already designed to diversify risk through investing in disparate securities as per the fund’s objective. It is therefore better to divide your investments into a few select funds

5. Investing with a short-term approach:

Every investment advisor will tell you to invest with a long term horizon, unless you are specifically looking to fund something within a fixed period. Long term investments gain significantly from compounding. Equity Mutual funds are good for long-term investments and thus you must stay invested for at least five years or more to reap maximum benefits from your investments

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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