Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • BW TV
  • Subscribe to Print
BW Businessworld

3 Reasons Why Your Mutual Funds Aren’t Earning You Returns

A lot of retail investor flows into equities in 2021 came in after the NIFTY had already crossed 16,000

Photo Credit :

1587720600_CPv4zs_2020_04_24T092216Z_1_LYNXNPEG3N0RO_RTROPTP_4_INDIA_ECONOMY_POLL.JPG

Wondering why everyone keeps saying that Mutual Funds are “Sahi”, but your portfolio isn’t growing? Here ae some possible reasons why you may be losing out.

You chase trends

The number one reason why most investors lose out on long term gains from mutual funds is the habit of chasing trends rather than anticipating them. It’s a well-known fact that most people invest based on short term past returns, and this habit has been further encouraged by so called advisory apps that are just marketplaces. When Gold prices spiked in 2020, investors rushed into Gold ETFs. A lot of retail investor flows into equities in 2021 came in after the NIFTY had already crossed 16,000. All these are examples of trend chasing, and should be avoided. Wise Mutual Fund investors do the reverse. They anticipate trends and get in ahead of the bullish reversals, and stay put patiently waiting for the tide to turn in their favour.

You don’t think it through

For most individual investors, “Mutual Funds” are synonymous with “Stock Markets”. In other words, they never look beyond equity funds. In doing so, they invest in a “binary” fashion – they’re either tuned out completely, or all into equities. Smart investors, on the other hand, follow sound principles of asset allocation and manage their portfolios in a top-down manner. If valuation indicators point to extraordinarily rich valuations in a certain segment (as was the case a year back), they do not continue to stay invested against the odds, assuming that “this time, it’s different”. They rebalance their portfolios in favour of debt funds. Similarly, when equity markets correct and start approaching fair valuations, they tilt their asset allocation towards equities using STP’s to stagger their investments back in. Above all, they understand that just because they got in or got out, markets will not immediately start moving in their anticipated direction! They remain patient and wait for trends to play out after the fading of the invariable hysteria that characterises all securities markets at some time or the other.

You’ve got too many cooks!

When it comes to Mutual Funds, too many cooks do indeed spoil the broth! While it’s not advisable for new investors to invest into direct plans, having too many people advising you will also certainly prove to be detrimental for you as well. Each Advisor may have a different viewpoint and also have a vested interest in taking down the other’s recommendation. Caught in this crossfire of advice, you’ll be trapped in a web of confusion, indecisiveness and ultimately – inertia. Instead, recruit just one trusted Advisor whom you believe is competent as well as conflict-free, and concentrate your Mutual Fund investments with him or her. You’ll find that you’re able to take decisions more quickly, your portfolio will also be a lot less scattered, and your overall asset allocation a lot easier to maintain and fine tune. When it comes to an Advisor Mutual Fund Advisors; go ahead, put all your eggs in one basket – and watch that basket closely!


Tags assigned to this article:
mutual funds