Mutual Funds are one of the investment instruments preferred by investors of all kinds to safeguard assets or generate profits. Still, they don’t always work for all investment profiles.
What is the main advantage of a mutual fund?
Diversification. A diversified and expertly managed mutual fund allows quick and easy access to different markets globally, as well as different asset classes, sectors and regions with a low investment amount.
Best performing mutual fund is an instrument that allows access to various associated benefits to promote long-term savings and voluntary pension savings, for example. But choosing the wrong fund will affect your investment goals. We share with you some common mistakes that you should avoid when betting on this tool:
# 1: Choose a mutual fund that doesn’t suit your risk profile as an investor
When investing you must be clear about your risk profile as an investor. For instance:
If you are more conservative, you will look for less risk in your investments and you will invest in instruments with more limited variation, such as Mutual Funds of sovereign debt or companies consolidated in the stock market.
On the contrary, if you are more aggressive, you will look for assets or financial instruments with high return potential despite having a higher risk – such as Mutual Funds made up of stocks from emerging markets or stocks from technology companies, for example.
# 2: Not knowing the type of mutual fund you chose
In addition to knowing in which financial assets your mutual fund invests, you should read the description of the fund contained in its internal regulations. This exercise is key for you to understand how this instrument behaves and will also help you assess whether it effectively fits the risk you want to take.
# 3: Focus too much on performance
To be fair, all investors, not just beginners, fall into this trap if they don’t prepare well. Short-term returns often distort the big picture. Many of the Best Mutual Funds India today will not necessarily underperform tomorrow, especially over a 12-month to 3-year horizon.
That is why you must be clear if your investment horizon fits with the strategy of the fund you chose. For example, if you want to buy a house in six months and invest in a stock fund, you must understand that you could suffer losses in that period.
Likewise, if your investment objective is to protect the money that you saved for the foot of a house while you manage the rest of the mortgage loan, the most appropriate thing would be to invest in asset funds that offer low returns at a lower risk.
So, while important, performance is not the only reason for choosing a fund. Likewise, the management style used by the administrator for a particular fund must be in accordance with and accommodate the investor.
Similarly, reviewing the fund’s performance history gives you an idea of what its future performance might look like. However, it is not a guarantee of future performance of your investment in mutual funds India.