Common Mistakes in mutual funds investment

Common mistakes in mutual fund investment

Mutual fund is the best option available to create wealth in long term. The beauty of this product is that the investor can generate wealth in long term through systematic investment even if investor have no knowledge of financial market and do not have much time to track the market. In India, the people still have not much knowledge about it. Today we will talk about some points to understand when you decide to invest in mutual fund.

• Avoid invest in the NFO (New Fund Offer) only for that it has lower NAV value. NAV value is irrelevant only growth is important. NAV value derives from scheme’s investment like share or bond. It is true that you can get more units investing in NFO but the over of period NAV growth is important not its initial value.

• It is misconception that higher NAV has become overpriced so you should invest in lower NAV schemes. The growth potential of NAV is depend on the portfolio where the fund manager have invested the fund. So instead of NAV value, your focus should be on the fund’s portfolio and investment style.

• Do not trap in thematic or sector fund as it is high risky funds. Although it have growth potential but the performance of the fund only depend on the particular sector or theme. For example many of investors have trapped in infrastructure funds or reliance natural resources fund have given the poor return as compare with other diversified or bluechip fund’s scheme return in the last 5-6 year. It is advisable that you should avoid or invest very less portion of your saving according to your risk appetite in these types of funds.

• The near term good performance do not guarantee for long term performance. Your criteria to choose the fund should not only the near term performance. The scheme should perform in all market cycle with compare with its other same category schemes.

• If you have invested in mutual fund for long term wealth creation then dividend is irrelevant for you. As the value of NAV adjust against the declared dividend. If you do not need money in regular period then you should avoid dividend option. Although the dividend is tax free in investor’s hand but it comes in investor’s hand after deducting the dividend distribution tax.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Common Investing Mistakes

The individual investor often makes certain typical mistakes that will eventually cause him to give up or to lose everything. If we just follow some discipline and avoid some mistakes then investing is not much critical rocket science. In this article we are sharing some common investing mistake and how to avoid those mistakes.

Any investment is not 100% safe:

Yes believe me, none investment is 100% safe including your bank fix deposit. Every investment implies a certain risk factor that is determined by a multitude of factors. So if you are ignoring risk factor, it means you are fooling yourself.

Do homework on your investment before investing :

Those investors who neglect risks also have great expectations regarding the general profits. I advise them do proper homework of the investment product. It is very important to understand risk and return ratio very well before investing. If you don’t do proper homework you may be lost the final investment also.

Diversify your portfolio:

Portfolio means, all the investment a certain person has made. Through diversification the investor attempt to cover losses through profits some companies that might register losses. Regarding the optimal rapport between winning and security, a portfolio will have a pyramidal distribution of the stock types. The biggest investment will be done in companies with minimum risk and maximum security like governmental bonds. Climbing the risk stair the number of investments will decrease. Investments in extremely risky companies will represent a low percentage of the portfolio.

Being greedy and/or being afraid:

Greed never pushes to safe investment. Through greed you will only make investments that do not stand a chance. Fear will determine a rather calm and secure behavior that won’t bring you losses but will cause you to flip over great opportunities also.

Identify your need and risk tolerance:

An investment has to be done accordingly to the needs and risk tolerance of every individual. These two elements are unique for each person like fingerprints are always different. The same way there can’t be two persons with identical needs and risk tolerance. So, if an investment is an opportunity for the one, it does not mean it is for you too.

Thinking you are the smartest:

Thinking that you are the smartest investor it is a big mistake. Every investor bases his decisions on information he knows at a certain moment. Not wanting to hear advice or to hear new things, does not make you smarter, it brings you a great disadvantage and you will only put on hazard with your investments. So be updated about financial market and investment.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com