Commited mistake while investing in mutual funds? Check this out

We all know investment in mutual funds involves risks. You are prepared to face the risks of the market but what if unrelated market events affect your mutual funds. There have been instances of fund managers indulging unethical practices or insider trading, thus affecting the mutual fund. No one knows when this kind of event occurs in a fund. 

The fact is that if someone has invested money in such a fund then he needs to blame his own negligence. He invested the scheme without doing much research.

Now we will tell you what to do if you commit such a mistake. 

If you realise that you have invested in the wrong mutual fund, then your first step should be to understand how you made the mistake. Whether you followed a friend’s advice or follwed the herd. 

If someone invests in the wrong fund, and the fund continues to perform poorly for a long time, then the investor gets discouraged. 

Hence you need to understand the mandate of the fund in which you are investing. 

You can look at various parameters for this like rolling return, risk-adjusted ratio, track record of a fund manager or AMC etc. After this, compare these parameters with other similar funds. 

After considering all these factors you have to analyse how your fund is performing in comparison to benchmark or other similar funds. If it is performing poorly than those funds, then it’s natural to shift towards the better fund.  Board member of Association of Registered investment advisors, Lovai navlakhi says that equity mutual funds go through various phases of outperformance or underperformance. They depend on the business cycle or external macro factors. It is important to understand the appropriate holding period and expected return of a fund. 

Let us understand this with an example. Let us assume you have invested in a small-cap scheme. After this market goes through short-term correction, which induces volatility in small caps. 

Now the mandate or timeline of a small-cap fund is 5 years. So if you redeem your investment due to this short-term correction, then it won’t be a correct decision. 

But if your fund is continuously underperforming the benchmark or comparable funds, then you need to exit the fund and invest in a better alternative fund. 

Now let us look at points that investors need to keep in mind.  Before investing in a mutual fund you need to look at both qualitative and quantitative qualities. 

Quantitative variables include the previous performance of a fund, while quantitative qualities include skills of the fund manager, way of investing, system etc. The selection of a fund should be done on very strict criteria. In this, you need to consider your risk appetite, investment objective and financial goal. 

So if you had a huge loss due to investing in the wrong mutual fund, then don’t hesitate in taking the help of a financial expert. So that you don’t repeat the mistake.