1) Do not apply ‘cheaper the better’ formula- NAV or Net Asset Value
Mutual funds are purchased in specific units; Net Asset Value is the price per unit of a mutual fund. When you subscribe to a mutual fund, you are buying individual units as per the Net Asset Value. Many investors think that the Net Asset Value of a mutual fund influences fund performance. This is entirely incorrect as the Net Asset Value has no impact on the performance of a mutual fund. A higher/lower Net Asset Value does not determine a fund’s performance.
2) Don’t Divert
Too early withdrawal is one of the common mistakes that early investors commit simply because the fund did not perform well for a few months. Market conditions are bound to be volatile; that’s how it functions. Nobody is immune from an economic fluctuation. It is advisable that you do not change your investment patterns based on every downfall. Wealth creation is a long-term process; it requires one to be patient and considerate. Therefore, do not divert from your investment.
3) Do invest in Direct Mutual Funds only if you are well-versed with the market
Every mutual fund comes in two different variants, direct and growth. As a smart investor, it is advisable that you select a mutual fund with a straightforward option in comparison to a mutual fund with a growth option.
A direct mutual fund has 1% less expense ratio in comparison to a growth option mutual fund. A difference of 1% can have a significant impact on your maturity amount. Long term investment can be 20% cheaper in a direct mutual fund for 20 years or more.
4) Do consider Tax-Savings and Liability
The liability of income tax cannot be avoided concerning a mutual fund. Mutual fund, being a financial and investment instrument, is bound to attract income tax, which has to be borne by the investor.
5) Don’t forget to time the market
Many investors do not subscribe via a systematic investment plan. They try to time the market. Timing the market means that the investor buys a particular mutual fund during the time of a market dip, that is when the stock market is down, and the Net Asset Value is available at a lower price.
Timing the market is not recommended for young investors. They may instead go with the traditional method of a SIP. Nobody can predict the stock market, and there might be multiple cases of an economic downfall. Investment via SIP will help you take advantage of rupee cost averaging.
6) Do not invest all at once
Do not invest all your money into a mutual fund. At times, many investors get attracted to the financial markets and put all their money into mutual funds. This is the wrong decision as it will deplete your savings.
At any cost, do not touch your emergency funds. You should invest in a mutual fund or any fund only when you have procured enough balance in your savings account. In case of an emergency, you will not be able to withdraw money from your mutual fund immediately.
7) Do not forget to review
Mutual funds help you invest in various groups such as bonds, equity and gold. Every fund manager is good enough to make a profit for his investors, followed by mutual fund schemes policies. It is therefore required that you as in investor keep a regular track on the fund’s performance. A periodical review can do well anytime. If you aren’t too sure about the fund’s performance, you can certainly take a stand to weed them out!