Seven Costly Mistakes Mutual Fund Investors Must Avoid

The allure of the equity market has drawn many investors towards mutual fund schemes spanning small, mid, large, flexi, and balanced categories. However, amidst this fervor, there are pitfalls that investors often encounter. Livemint consulted with personal finance experts to identify these prevalent missteps.

1.Neglecting Financial Goals

Investing without specific financial objectives can lead to aimless allocation of resources. Balwant Jain advises aligning investments with goals, emphasizing the importance of tailoring investment products to goal timelines and criticality.

2.Chasing Returns Over Objectives

Jitendra Solanki cautions against prioritizing high returns over financial milestones, urging investors to focus on long-term financial needs rather than immediate gains.

3.Excessive Trading

Frequent buying and selling of mutual fund units in pursuit of short-term profits can incur unnecessary costs and tax implications, warns Pankaj Mathpal.

4.Market Timing

Panic-driven reactions to market fluctuations often lead investors to disrupt their investment plans, notes Pankaj Mathpal.

5.Lack of Diversification

Balwant Jain advocates for diversification across asset classes to mitigate risks, emphasizing the importance of adhering to asset allocation principles.

6.Unrealistic Return Expectations

Balwant Jian stresses the need for realistic return expectations, suggesting that equity mutual funds typically yield around inflation + 6% in the long run.

7.Inconsistent Investment Review

While periodic investment reviews are essential, Balwant Jain advises against over-monitoring investments, recommending an annual review frequency to avoid detrimental actions based on short-term fluctuations.