Avoid These Mistakes To Get The Best From Mutual Funds

Mutual funds are fast emerging as ideal investment options that have the potential to ensure that investors have enough money at every stage of their life.

- Hemant Rustagi

However, this can happen only if one understands every aspect of mutual fund investing and follows the right process for investing in them. Making common mistakes while investing in MFs can cost investors dearly as it can either result in taking higher risk or lower returns and hence compromise some of the important investment goals in life.

Here are some of the mistakes committed by investors and how to avoid them:

Ignoring asset allocation while investing in MFs : Mutual funds allow investors to invest in different asset classes through a variety of funds. However, investors often end up investing haphazardly without ascertaining the right mix of asset classes in the portfolio. This approach either makes portfolios very aggressive, taking them beyond their accepted level of risk, or very conservative, resulting in negative real rate of return, i.e. gross return minus taxes and inflation. In reality, asset allocation is important as it determines the level of risk and what to expect in terms of returns. The right way to decide asset allocation is to consider the time horizon and investment goals. While equities and equity-related funds should be the mainstay for longterm goals, balanced funds can be ideal for medium term and debt funds for short term goals.