The global inflationary conditions has already made us realise that parking lakhs of rupees in the savings bank account is itself a mistake and not considered as an investment. But, when it comes to investing in mutual fund schemes, there are several asset management companies playing in the market. As an investor, it becomes really confusing to select one company as we do not have particular criteria to choose.
In this article, we will understand what mistakes we are making while selecting a mutual fund company to invest our hard-earned money in mutual fund schemes.
Taking suggestions from friends
Nothing is bad in taking suggestions from your family and friends while investing, if they are in the field of financial planning. But, if they are not, it is not necessary what works for them will definitely work out for you as well.
If you are copying their investment plans, the probability of you not getting desired return on your investment as their financial objectives, current financial conditions, lifestyles, and risk appetite are absolutely different from yours.
Your investment is inspired by advertisements
If you are getting affected by advertisements of the mutual fund schemes provided by a particular mutual fund company, it might prove to be an investment mistake for you. In India, mutual fund schemes are majorly sold by way of various promotional techniques like agents, banks, advertisements of television.
Although, your selection should be based on the historical record of returns and whether the given benchmark is outperforming or not. In India, criteria for selecting a mutual fund company is totally unreasonable by many investors.
Not exploring other options
When you listen or read about a mutual fund company, you tend to invest in that particular AMC and select the mutual fund that suits you the best. Choosing the ones that fulfil your financial objectives, but, who doesn’t want more money? If there is an option that has a potential to give you better returns than selected ones, you must go for it. It can only be done when you explore other AMCs and have a better optimisation of your resources.
When we talk about comparisons, it does not always mean comparing different mutual funds schemes. Comparing different mutual fund schemes is inappropriate as different schemes have different financial objectives and risk appetite.
If you want to have a variety to compare adequately, you need to evaluate the same mutual fund schemes of different AMCs. You can select the scheme which is beating the industry benchmark.
Not looking at the benchmarks
Investors tend to look at the numbers that are fulfilling their financial objectives, which is a major mistake while investing in a mutual fund. As an investor, you need to look at the benchmark that an AMC needs to outperform with the help of the decisions made by the fund managers. Don’t look at the data that company is willing to show you, look at what you need to see.
These are the few mistakes that investors usually make and consequently reduce their overall returns. It has been seen that companies with AUMs (assets under management) are not performing well. On the contrary, companies with lesser AUMs are outperforming the benchmark.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com