Unlike Stock Markets which involve direct investment on a stock offered by the company, mutual funds pool money from other investors which is invested in stocks, bonds and other multiple assets. Mutual fund money managers who have control to monitor the investments and have a task to gain profit for the investors on their money handle after the money is invested.
Mutual funds are more stable forms of investments but they must also be carefully read and researched about, before taking a decision to go with a particular scheme. A first – time investor into mutual funds is bound to make many mistakes and here, we break them down so that you do not commit the same:
- Mutual Funds are not for short – term gains
Do not plan to step into this form of investment if you are looking for gains anywhere within the next three years. Be prepared for the difficulties in the market and do not take a decision to invest just because the market might be going strong.
In fact, it is advised to invest when the market is low so that the chances of gains are more when it lifts up.
- Do not over – diversify
Diversification is often seen as a top strategy to reduce risks. That works largely for stock trading but not necessarily for Mutual Fund Investments. Incorporating too many schemes in your portfolio will only make it difficult to follow – up and handle them. It is advisable to hand – pick few schemes that exposes to the greater pie in the market.
- Recognize Risk Profiles
It is extremely vital to review the scheme for its past performances before it is bought. Even if the fund shows a track record of being successful in returning the investments with profits, it is important to ask and find out how.
Has the fund manager been investing surplus in a single sector and then gained that profit? What if the sector falls in the upcoming months? On the whole, how has he allocated funds and how is he getting the profits? Is it the best way out there to ensure minimum risk? Answer these questions in detail before completing the injection of funds.
Also, systematic investment option is the best way to go about, rather than investing lump sums that increases the impact on the money if the market slips. After all the investments, it is necessary to review the portfolio in set periods. This is something which majority fail to do. As a result, the gains become more uncertain as to whether or not it will serve the purpose.