While investing in mutual funds is a great way to build a good fortune for the future, not everyone who invests in mutual funds earns valuable returns. The success greatly depends on the tactics you apply. In this write-up, we provide you tips to avoid the most common mistakes while investing in mutual funds.
One of the key mottos of mutual investors around the world is not just to save money but to multiply their small investments and build a small fortune for future purposes. While, it is very easy to become an investor, being able to gain valuable returns on a consistent basis is difficult; not everyone can do it. As a matter of fact, research suggests that a large number of newbie investors fall out within first few months of investing because they either lose their money or they lack necessary skills to grow their funds.
If you are an amateur investor, first and foremost, you need to know that mutual fund will not help you earn high returns overnight, it is a long term investment scheme, and you need to be patient and allow your money to grow over the years. Second, of all, the success and the failure of your investment returns significantly depend on your investment strategy. As an amateur investor, it is very easy to commit mistakes, so, it’s essential that you know the most common mistakes people commit and avoid the same:
Choosing the wrong fund
This is the most common mistake amateur investors commit; most people do not have knowledge of which funds to pick and end up making the wrong choice without any research. Before you start investing, it is imperative that you determine your financial goals and you can then choose from stocks, government bonds or infrastructure mutual funds; just make sure it suits your requirement. It makes no sense to pick a fund that requires investing a lump sum amount even if you do not have the required amount to spare. Typically, the experts suggest that the new investors should choose a fund that would require them to pay a small amount on a monthly or quarterly basis.
Never put all your eggs in one basket
What this means is that you should not invest all your money in one single fund or in a single investment sector. Remember, diversification is the key to success in mutual fund investment. Make sure that you invest smaller amounts in plenty of funds across different sectors to help you mitigate the risk of loss in one sector as well as help you build a good portfolio.
Being over ambitious
A lot of amateur investors tend to lose their money because they go overboard with their investments early on. While it’s nice to be ambitious, getting over ambitious should be avoided. This could be the difference in you earning a fortune and losing all your money. Set yourself realistic targets, like for instance if you want to grow your money by 10% by the end of one year, then you must invest in those funds that you believe can grow in the future. Invest maximum amount in funds that have proven to provide valuable returns in the past. At the same time, don’t expect the funds to provide the same returns always, be flexible and keep investing in various funds.