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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:

1. 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. 

1. 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. 

1. 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.  

1. 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.