The importance of investment in fulfilling life goals is well-established. These goals range from buying your dream home, providing the best education to your child, or having a comfortable retired life.
Simply put, a customized financial portfolio can help you in accomplishing big-ticket purchases as well as ensuring wealth creation. And one of the most important components of a financial portfolio is mutual funds.
Mutual funds allow you to invest across asset classes including equity, debt, gold and silver through a systematic investment plan (SIP).
The periodic SIPs ensure investment discipline, provide better diversification and returns and eliminate the worry of ‘timing the market’.
However, there is no one-size-fits-all approach here. In other words, it is important to choose the mutual fund schemes that best align with your goals and financial portfolio.
The amount and tenure of investment also need to be customized based on your needs.
As a prudent investor, here are some of the investment mistakes that you should avoid in FY23.
Not having a clear goal
Doing anything without a goal is like working without motivation.
Those who invest without any goal attach themselves to high-risk and unnecessary financial problems.
Before investing, you must set your short-term and long-term goals and invest accordingly.
You must always evaluate your risk appetite and invest smartly.
Investing too less, or too high
Before investing, always evaluate the potential risk and the future uncertainties.
A deep analysis of your monthly income, spending behaviour and liquidity needs must be done in advance.
Basis this, you should fix your investment budget. You must also think through the plans that require long-term lock-ins.
Since savings fluctuate from person to person, it is very important to have a clear view of the amount you want to invest.
Investing without thorough research
Whether you are a beginner or an intermediate in investing, research and gain
knowledge about the industry and the market to build a strong financial foundation.
Many salaried professionals invest to save their taxes, having little or no knowledge of the product they have invested in. The more you know the better decision you take.
Learn more about the systematic investment plan (SIP), its returns, investment rules and regulations, and browse through the different product offerings. Also, it is advisable to seek investment advice from an expert.
Before investing, know about the company, fund manager, the businesses they operate, and their leaders.
Many investors blindly trust the rating agencies without comparing the products and the evaluation criteria. These are not the only parameters to be considered.
Current performance cannot guarantee the future success of an investment.
You cannot compare the performance of a small-cap fund with a large-cap fund, as both the funds invest in different sets of stocks.
Comparison based on the right peers with the right benchmark is the key to successful investment.
No mutual fund product can guarantee you the returns and are subject to market volatility.
For instance, debt funds that are considered risk-free will also not provide a guaranteed return.
The goal should be sustained investment to measure the end performance, irrespective of how the market is performing.
It is important to take financial advice and invest our hard-earned money wisely.
(The author is Head- Business Enablement & Marketing, Aditya Birla Sun Life AMC)
Disclaimer: The views and recommendations made above are those of the analyst and not of MintGenie.