6 Mistakes To Be Aware Of Before Investing a Lump Sum Amount In Mutual Funds
by Arina Smith Investing 17 March 2020
Mutual funds investments have created quite a buzz among investors in today’s money market. The credit for this growth goes to the range of investment plans that are offered to the investors. Various investment options like equity funds, debt funds, and balanced funds are accessible to investors. There is a Systematic Investment Plan available for the low-risk takers and a lump sum amount for the high-risk takers too. However, nothing in this world comes free of cost. Mutual funds have several risk factors too and an ill-informed investor might pay the price for that. The immediate aid for avoiding risks is the use of a SIP calculator. To use a free Lump sum SIP Calculator, check out this link.
Investing a Lump Sum Amount In Mutual Funds
The proper awareness of mutual funds may lead to greater returns.
One of the major reasons first-time investors end up making mistakes is that they do not have experience or guidance. If you want your investments to start performing, you need to work with a seasoned and experienced financial advisor that offers wealth management services. They will be able to guide you on the most effective and performance-oriented asset classes that you should be investing in.
If you are a new investor who is planning to set foot in the mutual funds market, you should be aware of the mistakes made in general by various investors. You must also gather information about various plans offered in mutual funds. Along with this, the SIP calculator is also helpful in assessing the returns from investments.
Here are 6 common mistakes that you must be aware of before investing your earnings in the mutual funds market –
1. Instinct-driven decisions
Many investors tend to follow their hearts and end up listening to their own instincts before investing in mutual funds. The money market does not work on instincts. One must do proper research about various investment plans and then opt for the right one as per their own risk appetite. Follow the previous years’ performances of the available funds and then make decisions. Also, calculate your future returns through a lump sum SIP calculator and validate your return on investment rather than utilizing only emotions and gut feelings.
2. Impatient behavior
A lot of investors are there in the money market and expect immediate returns and benefits from their investments. But, this is not how the investment business works. There are a lot of factors that lead to appraisals and downfalls in the market. The very first attribute of an investor must be patience and optimistic behavior. So, have faith and patience.
3. Ill-informed about the fund manager
One of the silliest mistakes that investors make is they forget to evaluate the profile of the fund manager who is in charge of decision-making. An investor needs to understand that fund managers play a vital role in channelizing investments. The proper knowledge of his/her profile is also very essential. The experience and skills of a fund manager can recover from the downfall of the market. Hence, the significance of their job must be understood beforehand.
4. Absence of financial goals and budgeting
Many liquid cash holders step into the mutual funds market without any further financial goals. Most people are driven by the interest of saving taxes and end up investing in ELSS (Equity Linked Saving Schemes). The ELSS aids tax exemption but a lump sum amount in this may lead to greater exposure to risks. Also, proper budgeting is required before investing in mutual funds as one may end up putting all the money at risk by investing in invalid schemes. It is better to opt for a lump sum SIP calculator to calculate future returns so as to aid the budgeting issue.
5. Making investments in various funds
A rational investor often tends to make various small investments in different funds. The faith of reaping benefits from at least one of them ends up on the wrong side. One must find a potential scheme to invest the money rather than engaging in various such funds. In the long run, it becomes hectic and difficult to analyze and track all the funds. Investment requires a lot of mental awareness so as to stay updated about the market mechanism.
6. Blindly trusting rumors
As per basic human nature, many people trust the advice and suggestions of friends and family over standard statistics. People spread rumors based on their own experience which may vary periodically. A lot of rumors are also spread by competitors in the market. The money market does not perform in a stagnant manner, it fluctuates. So, without any proper information do not make investment decisions. Always analyze the risk involved in investments through legal documentation and statistics. The better option is to trust a lump sum SIP calculator than trusting rumors.
Mutual funds can be the best lump sum amount investment option to opt for if you make the correct decisions. The money market mechanisms should be trusted as well as analyzed properly before setting foot into it. Every form of money market involves risks. Hence, all we can do is take cautious decisions to abate them. An intellectual investor is one who is smart and clever enough to channel money effectively. Mutual funds, being managed by experts, generally bring high returns over a longer period of time.