Investing in mutual funds is both a game of discipline and skill. It is the former that is the reason behind poor performance of the scheme among investors – lack of discipline. Often investors get anxious as soon as the markets take a dip, or the markets correct. Though for long-term investors these market dips would act like mere speed bumps and would not affect them in the long run. It is times like this that either makes or breaks an investor. To ensure that you do not fall into the trap of making unfit investment decisions, you must not forget some key mutual fund investment points. Read on to know about these key points that can help you choose the right mutual fund investment plans for your portfolio.
Key things to remember when investing in mutual funds when the markets are soaring high
Following are a few points that an investor must be aware of when they invest in markets when the markets are at its peak:
- Timing the markets
You must have heard market gurus constantly saying that to earn substantial returns on your investments, you must ‘buy low and sell high’. However, as easy as this advice sounds, it is practically not possible for an investor to successfully predict the movement of the markets at all times. Hence, several investors end up making significant losses while attempting to time the markets. Rather than timing the markets, you might consider investing time in the market, which simply means to stay invested for a prolonged duration.
- Diversify your portfolio
It is always a good idea to diversify your investment portfolio across market sectors, themes, asset classes, and location. Diversification is a way to mitigate your losses as it helps to spread your risk across a wide variety of investments. This means that losses arising from any one type of investment can be easily offset by the profits earned on different types of investment. One should take care that in the name of diversification, one does not over diversify their investment portfolio which might not work in the favor of investor.
- Do not pause your SIP instalments
One of the fundamental principles of SIP (systematic investment plan) investment is that one should not stop their SIP instalments based on the market condition. Due to a concept known as rupee cost averaging, where in an investor ends up accumulating higher number of mutual fund units when the markets are low, and vice versa, an investor does not need to be bothered by the market highs or lows.
- Constantly review the performance of the scheme
Another blunder several investors often commit while investing in mutual funds is not reviewing the performance of your fund. Several investors often assume that their job as an investor ends up selecting the right fund for their portfolio. However, that is only job half done. A successful investor ensures that they monitor and review the performance of their schemes and their portfolio on a regular basis. This will help them to eliminate the funds that have been constantly underperforming and delivering poor returns to investors.