3 Important Factors To Be Kept in Mind While investing in Mutual Funds

Today many of us knows about mutual funds and the role of SIP(Systematic Investment Plan)in creating wealth in the long-run. Thanks to AMFI’s “Mutual Fund sahi hai”campaign and the investor awareness sessions conducted by amc’s(Asset Management Companys-Nothing but mutual fund firm)

Even though amc’s are trying to create awareness among investors, it is fact that not all investors are creating wealth through mutual funds! Do you know the reason why?-

  • Expecting instant returns in the short-term-Entering and exiting mutual fund schemes frequently by noticing short term returns
  • Booking profits when the market gives instant returns in the short-term- Even though investors entered the market with a long term view, they are eager to book instant profits in the anticipation of the market fall in the future
  • Churning the portfolio frequently- Investors are eager to catch “The Best Mutual Fund” which is not possible for a fund to hold No.1 position at all times

Because of these 3 factors investors are not creating wealth through mutual funds. Is it really viable?Absolutely? No! Then why it was happening?

While some investors-

  • Watches their mutual fund portfolio daily
  • Get depressed in bear market and exit their mutual fund holdings in a hurry
  • Not satisfied with the mutual fund returns in the short term(what they are ignoring is mutual fund is a long-term vehicle to create wealth, it is not possible for a mutual fund to create wealth in the short-term)

To be a successful investor , one should keep 3 factors in mind especially in mutual funds, because mutual funds is not a short-cut to become wealthy, it should be a long-term journey! Yes wealth is created in the mutual funds in the “long-term”only. For that you have to-

  • Stay invested for the long-term through mutual fund route
  • Don’t churn your mutual fund portfolio by seeing short-term market returns especially in bear market you should not stop your SIPs, infact you should allocate much higher proportion to mutual funds through sip route
  • Don’t try to catch “The Best Fund”! It is never possible for a fund to hold No.1 position at all times. Do remember even a best performing fund behave as a laggard in the short term, at such times keep faith on the long-term performance of the fund and wait for the fund to bounce back

If you stay invested patiently for long-term by not getting tempted by short-term returns( in anticipation of market fall in the future), frightened by the bear phases you would definitely create 15-18% CAGR(Compounded Annual Growth Rate)returns despite of many bear and bull phases.

Do remember even the stock market faces many economic crises in the past, Indian mutual funds still deliver 15-18% CAGR Returns in the past and it would be possible in the future too! What you have to do is- keep on investing ignoring the market movements daily.

Bear and Bull phases are part of wealth creation. Stock Market history proved that ” Real Wealth is created in bear market”. So to create wealth stay invested patiently in bear market and wait for the market to bounce back to bull phase. Then only you can create wealth through mutual funds!

Published by bankinfor

I am a financial expert interested to create awareness on personal finance, insurance and investment products and it's pros and cons to a common man. My intention is to make public aware on savings and investments which should be a part of everyone's financial life. By browsing this site you can learn various investment products and it's risks(people mistaken this concept)associated with them

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