Are you a Mutual Fund Investor? Don`t Make These 4
Financial Mistakes
"The proactive approach to a mistake is to
acknowledge it instantly, correct and learn from it." - Stephen Covey
To err is human. We all make mistakes in different
aspects of our lives. And mistakes act like stepping stones. It helps us to
figure out where we went wrong and learn from our mistakes.
While mistakes help us grow, mistakes regarding
your finances can have a long-lasting negative impact. It is easier to get
confused in the current scenario. The pandemic has caused global upheavals.
In this article, we have listed down some financial
mistakes that you should avoid in the current scenario:
- Not having an adequate emergency fund
Everyone should have an emergency fund. It will
help you take care of emergencies such as job loss or a health emergency. Under
normal circumstances, an emergency fund should be able to suffice expenses for
three to six months, you can look at building an emergency fund that can take
care of your expenses for a year.
It is because, in the current scenario, there are
likely to be job losses which can leave you without a source of income. You can
do by saving more money. Look at your bank statements to find out any
recurring costs such as subscriptions that you no longer use.
You can look at building your emergency fund
through liquid funds and savings accounts. Many liquid funds offer instant
redemption to its customers.
- Stopping SIP Investments
While you may want to build a bigger emergency
fund, stopping your running SIPs may not be a good idea. Rupee cost averaging
is one of the most important benefits of SIP. It averages out the cost of
buying mutual fund units. In times like these, when the market is down, the fund
house will allot you more units for the same SIP investment amount.
Before making any hasty decisions such as stopping
your SIP and redeeming your investment, try to figure out if the decision that
you are about to take will help you with your long term financial goals. If
not, then you can continue with your SIP.
- Checking your portfolio several times
One reason you are probably thinking of stopping
your SIP investment can be because you are checking your portfolio several
times in a day or week.
In the current scenario, your portfolio is likely
to witness tremendous fluctuations. While it may scare you, it is best to focus
on the goals rather than the market levels.
Refrain from continuously checking your investment
portfolio. To make sure that you are not tempted to see how your mutual fund
investments are performing, log out of your account and uninstall investment
apps. This can help you see the bigger picture.
- Avoiding new mutual fund investments
The current scenario has made many investors risk-averse
and they are shying away from making onetime lump sum investment in the mutual
fund of their choice. If you have a running SIP or investing in a long-term
financial goal, making lump sum investment in the fund can help you reach your
goals faster. It is because you are likely to witness higher returns when the
market bounces back.
As the interest rates on fixed deposits and other
traditional instruments have gone south, you can look at making further
investments in your existing mutual funds or new funds. It is important to
select mutual funds in lines with your risk-taking capacity and time horizon.
Your financial advisor can help you select the right fund for you.
Conclusion:
In these tough times, it is easy to be influenced
by different people. It is utmost essential to act rationally and think through
our impending decision before taking any action.
It is better to avoid doing things that you may
later regret. These were the four mistakes that mutual fund investors are prone
to do in the current scenario. You can consult your financial advisor to avoid
mistakes and make the right investment decisions.
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