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5 Mistakes That Mutual Fund Investors Must Avoid Right Now

In such a complex situation, it’s very easy to end up making regrettable investment decisions. Here are five of them to watch out for right now.

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The equity markets have turned negative for 2019, and credit events have marred many categories of debt funds too, making investors wary. In such a complex situation, it’s very easy to end up making regrettable investment decisions. Here are five of them to watch out for right now.

Rushing into GILT Funds
Unaware investors who invest purely based on past returns gleaned from websites will probably be considering investing into GILT funds right now, as they have returned close to 15% or more in the past year. However, please note that this stellar return came on the back of a precipitous drop in bond yields; a trend that may not replicate itself in the near term. Avoid rushing into GILT funds, as they may in fact deliver subpar returns over the next year or so

Panicking and exiting from Equity Funds
With the NIFTY nosediving below the 11,000-mark, panic may be setting in. You may be tempted to succumb to all the noise and exit from equities altogether. However, this would be a bad idea, as it would be akin to selling out cheap. Markets are approaching reasonable valuations now, and exiting should be the last thing on your mind. In fact, if you were to exclude the top 10 stocks from the NIFTY, the index would already be trading at the equivalent of 9,000 levels right now!

Avoiding Small & Mid-Caps altogether
It’s all right to be wary of small and mid-cap funds, as they tend to be a whole lot riskier and more volatile in nature. Having said that, these two segments have taken a drubbing of a lifetime since January 2018, and many stocks are trading at 60-70% below their 2018 highs. It would be wise to make a judicious and measured allocation to small and mid-cap funds at these valuations, with your percentage allocation being contingent upon your individual risk tolerance levels.

Stopping your SIP’s
SIP (Systematic Investment Plan) returns may have disappointed over the past couple of years, but stopping them now would be unwise. SIP tranches that get debited from your bank account at depressed valuations, are the ones that deliver maximum wealth creation when the cycle turns around – which is an inevitability. Stopping and starting your SIP’s time and again will deplete from the rupee cost averaging effect which empowers them to deliver superior risk adjusted returns over the long term. Keep ‘em running!

Investing Lump Sums instead of staggering it in
If there’s one thing you should know about equity markets, it’s that they are seldom rational. They oscillate between extreme pessimism and irrational exuberance, and there’s no saying exactly when a bearish market will stop falling, however strong fundamental indicators are. It would be a wise move to stagger your equity investments into the market using STP’s (Systematic Transfer Plans) from liquid funds, instead of taking a bet on a certain lump sum level. A weekly-mode STP for a 3-5 month time frame from today should do the trick.


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