Don’t sabotage your FY25 portfolio! Avoid these 5 mutual fund mistakes
In FY25, maximize mutual fund investment success by researching thoroughly, diversifying assets, prioritizing consistent performance over past results, minimizing costs, and remaining disciplined during market fluctuations. Avoid common pitfalls to grow wealth effectively.
Investing in mutual funds can be an excellent way to grow your wealth over time, but it's essential to approach it with caution and avoid common pitfalls. As we step into FY25, here are five mistakes you should steer clear of to make the most out of your mutual fund investments.
Neglecting research: One of the gravest mistakes investors make is diving into mutual funds without conducting thorough research. Before investing, take the time to understand the fund's investment objectives, historical performance, fund manager's track record, expense ratio, and risk factors. Ignoring this step can lead to investing in funds that may not align with your financial goals or risk tolerance.
Overlooking asset allocation: Asset allocation is key to managing risk and maximising returns in your investment portfolio. Neglecting to diversify across various asset classes like equities, bonds, and commodities can expose you to unnecessary risk. Ensure your mutual fund investments are spread across different sectors and asset classes to minimise the impact of market volatility.
Chasing past performance: It's tempting to invest in mutual funds with stellar past performance, but this strategy can backfire. Past performance is not indicative of future results, and chasing hot funds often leads to buying high and selling low. Instead of solely focusing on historical returns, prioritise funds with consistent performance aligned with your investment objectives and risk tolerance.
Ignoring costs: Mutual fund expenses, including management fees, administrative fees, and other charges, can eat into your returns over time. Ignoring these costs can significantly impact your investment's profitability. Before investing, compare expense ratios across different funds and opt for low-cost options to maximise your returns.
Reacting emotionally to market fluctuations: Market volatility is inevitable, but reacting emotionally to fluctuations can harm your investment returns. Resist the urge to panic sell during downturns or invest heavily during market highs. Instead, stay focused on your long-term investment goals and maintain a disciplined approach to investing through market cycles.
Expert tips to help you succeed
Shlok Srivastav, Co-founder & COO, Appreciate
For investors who have been invested for the past two financial years or more, the focus must now shift towards capital preservation from wealth creation. The smallcap space has bounced back after the mayhem in March and is testing the February highs the smallcap 250 index touched in late February. Booking a nominal profit would be advisable in such an optimistically bullish market.
I also like the performance of pharma and healthcare funds in the past few years. Barring unforeseen regulatory crackdowns from the FDA, this space has been performing very well, and the growth push from the Indian government via the PLI schemes comes at the right time. Investors with a high-risk appetite should monetise on the growth opportunities by choosing a strong-performing pharma theme fund.
Hemant Shah, Principal Officer and Fund Manager of Seven Islands PMS
For FY25, investors should favour large-cap mutual fund schemes over small and mid-cap options, driven by the discomfort in valuations within the latter segments and the relative comfort in the large-cap space. Avoid the temptation of chasing last year's extraordinary returns; which has been the main driver of the three to five year elevated CAGR of all mutual funds. Instead, focus on the broader theme of consistent and long-term investment perspective and discipline, particularly through SIPs.
Exercise caution with thematic funds, entering when there's substance rather than hype to gain better valuations and book more profits. Compare investments with appropriate benchmarks and market capitalization peers.
Embrace a horizon of at least 1000 days, allowing ample time for your investments to mature. Resist the allure of short-term gains through trading and leverage, staying committed to the path of long-term investment. Stay the course amidst volatility, given this is an election year, and avoid selling in market panic. In FY25, consistency and patience along with large-cap mutual funds will be the pillars of success.
VLA Ambala SEBI RA & Founder of SMT Stock Market Today
To begin with, investors must set clear, achievable goals before starting on this investment journey, essentially mapping out their financial road ahead. Thorough research is essential, as blindly following the crowd or basing decisions on the success of other investors without considering one’s own risk tolerance is a trap to avoid. It is also important to make fair comparisons between similar types of funds, considering not only returns but also fees, fund size, and other key factors affecting performance.
Diversification stands out as an important defence against the perils of concentrated investments. The adage of not putting all one’s eggs in one basket holds particularly true in this context, serving as a buffer against market volatility. Moreover, maintaining composure during market fluctuations is extremely important. The inherent volatility of the market requires a balanced approach and constant adherence to the investment strategy.
Lastly, individuals should view mutual funds as vehicles for gradual wealth accumulation rather than shortcuts to financial success. This disciplined approach would prove beneficial in addressing the fiscal challenges and opportunities that 2025 may present to mutual fund investors.
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Business NewsMutual FundsDon’t sabotage your FY25 portfolio! Avoid these 5 mutual fund mistakes
First Published:5 Apr 2024, 12:44 PM IST
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