7 Common Mistakes Equity Mutual Fund Investors Should Avoid in 2019

Over the course of years, Equity Mutual Funds have gained huge popularity, and all credit goes to the exceptional returns that they have generated. The popularity can be observed from the ever-increasing investments in the equity mutual fund space. Now, even though the equity mutual funds have generated great returns, the performance of these schemes is unpredictable, just like the performance of the equity market. Due to this unpredictability, investors often get confused and make some general mistakes. So, if you are an existing investor or planning in investing in the mutual fund industry, the following are some common mistakes that should be completely avoided. 1. Getting Lured by Market Movements One of the most common mistakes made by equity mutual fund investors is that they make a lot of market-based decisions. The recent example of that is the past one year when during the volatile phase a lot of panic selling was seen among investors and the same is the case when the market goes up, as after seeing some returns on their investments, people start redeeming their units. So, this should be completely avoided and to get the full benefit from the equity fund, stick with your long-term goals. 2. Starting SIP for Short Term Equity Funds, except for some sectoral schemes, are not meant for short term investments, but the same is not realized by a lot of investors. After seeing the past performance they try to time the market and start SIP for short term. Now, during the bearish phase, it may get them some returns, but the same is not the case during the bearish phase. So, after not getting the expected growth investors to start redeeming the investments and often times end up facing losses. 3. Not Stepping Up the SIP Amount This is yet another mistake that people don’t realize in the initial stage, but after spending some time in the market do. To get the best benefits from equity funds a step is required from time to time, which not many investors do, and thus the growth is limited. So, if you are planning on making investments, make sure that you step up your SIP by at least 5% every year. 4. Investing Without Goals Mutual fund schemes from different mutual fund categories follow different objectives, which is often ignored by people, and it is later that they face the consequences. So, before making the final investments, make sure that you read the objective of the scheme carefully, see if it match with your own goals and then make investments accordingly 5. Taking Uncalculated Risk Risk is a part of equity funds but based on the investment style and strategies the risk associated with each scheme is different. Often times while selecting a mutual fund people forget about the risk factor, and in the future when the scheme start showing unexpected behavior they end up stopping their investments. So, if you are planning investments make sure you check the behavior of the fund. 6. Over Diversification or Under Diversification Too many schemes and too fewer schemes in the portfolio, both can be bad, but it is not realized by a lot of investors. People usually feel that by selecting a lot of schemes they can reduce the risk and by putting all the investments in a single scheme they can enjoy much higher growth. These strategies do not go as per expectations, leading to discontinuation of investments. So, if you are not sure how many schemes are good for your portfolio, contact an advisor for obtaining a balanced portfolio. 7. Choosing Schemes Based on Just Past Performance Past performance of the equity market as well as the equity mutual funds does not guarantee that the future will be similar, but not many investors under this. This is the reason that instead of choosing a scheme on the basis of objective, investment style, portfolio allocation, etc, they choose schemes based on the past returns generated. Due to this a lot of times they end up with a wrong scheme at the wrong time and later regret. So, conduct a complete analysis before making a choice. If you will avoid the above-mentioned mistakes while making investments in the equity mutual funds, you will be able to enjoy a smoother growth. Remember that greed and panic both are your enemies if you are planning on growing your wealth with mutual funds. So, the next time you are out for mutual fund shopping, make informed investment decision instead of making random ones.