In March 2020, the stock markets witnessed sharp correction or a steep decline in the market. However, the consecutive quick recovery of the markets attracted several investors towards equity-related instruments like a moth to a flame. Majority of these investors ended up investing in equity markets to earn substantial returns due to market volatility. However, before you decide to invest in the equity mutual funds, there are a few mistakes that you must be aware of. Let’s understand these common mistakes that equity investors make in the rush of investing in the equities.

Common investment mistakes of investing in the equities

Here are a few common investment mistakes that an equity investor must be aware of and refrain from committing such mistakes while investing in equity funds:

  1. Failure to link mutual fund investments with their financial objectives
    Equity investors must strive to link their mutual fund investments with their financial goals be it short-term, mid-term, or long-term. These financial goals range from investors to investors. After carefully analyzing one’s financial objectives, risk appetite, and investment horizon, an investment must carefully do their financial planning. This will help them choose mutual fund schemes that align with their financial goals and investment portfolio.
  2. Expecting improbable returns on investments
    Several investors make the mistake of investing in equity markets with the false hopes of expecting remarkably substantial returns. However, this might lead to disappointment when the equity fund is unable to match the high anticipations of investors. Having said that, history is a testament to the fact that equity mutual funds have the potential to generate significantly higher returns than any other types of mutual funds when invested for a substantial period of time.
  3. Expecting consistent returns from equity funds in a short span of time
    Though equity investments show high potential of offering substantial returns to investors, but that is true when an investor invests for a longer duration of time. For shorter span of period, the same may or may not be true. This is because equity securities are exposed to higher volatilities in a short span of time. Hence, it is better not to expect consistent returns from equity investments in the short span.
  4. Over diversification of investment portfolio
    Though it is important to diversify your investment portfolio across different types of asset classes, sectors, and location, one must make sure that they do not over diversify their investment portfolio. This is because if you over diversify your portfolio, it may negate the benefits received from diversifying your investment portfolio and rather prove disastrous for your investments. Hence, a good investment rule is to not invest your money in more than four to five types of investment.
  5. Investing in mutual funds solely based on a fund’s NAV or net asset value
    Novice investors often make the blunder of choosing mutual fund schemes solely on the basis of the NAV of mutual funds. Investors new to the investing world often assume that Investors new to the investing world often make the mistake of choosing mutual fund schemes that have a lower NAV assuming that these schemes are cheaper. However, it must be noted that NAV of the mutual fund do not play any role in determine the returns earned on mutual fund investment. It is the growth in the value of NAV that impacts the returns earned on mutual fund investments.

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