Mutual Fund Investing Mistakes to Avoid

We Singaporeans have always seen our parents saving money while growing up. Singapore, being one of the costliest places in the world, it is essential to take up the advice of our parents. At an average, many Singaporeans invest in mutual funds through a financial advisor to have paved a safer way to grow money. However, many people might make some common mistakes while investing in mutual funds.

Mistake 1 – Investing in Mutual Funds Without Setting Goals

Investing in mutual funds is an easy process, but not setting a goal beforehand can affect your financial plan. Ask yourself – Why do you want to invest in mutual funds? What kind of returns do you want? For how many years you wish to invest and how much? What are the types of funds that best suit your financial needs?

You need to remember that mutual fund is a part of your financial plan and must be designed to achieve long term goals. If you are ignoring your financial goals, you might end up getting results that might not suit your needs or your expectations. This will eventually affect your financial plan. So, plan a goal and choose the right type of fund.

Mistake 2 – Not Considering the Fund Performance Before Investing

Take a look at the performance of the mutual fund you are considering before investing in it. Even if you are a first-timer who wants to invest in mutual funds, tracking the market can help you understand the performance of the market. There are also many financial advisors who can track the market and prepare a report for you to understand the reports well and take a conscious decision in selecting the right mutual fund. The trick is that you need to invest systematically and for a long period to track the market.

Mistake 3 – Taking More Risks that You Can Handle

While making a portfolio, you can’t ignore the risk profile of the mutual funds. Singapore is known to have the richest populations and a growing economy. But an investor should always be aware of the risk of the instruments that one is investing in. Singapore’s economy is dependent on foreign trade and interconnected with China’s economy. As an investor, you need to carefully weigh the benefits and the risks before investing in mutual funds, especially when it comes to equity funds. You can’t focus on the instrument to beat the index. The actual focus lies on the risk. When the risk is higher, the returns are also higher. But there is a risk to lose all the money you invest without calculating the risk. So think about your risk capacity and invest in the fund that suits you and your risk appetite.

Mistake 4 – Not Diversifying the Mutual Funds Properly

Diversification is one of the most important factors of investing. Diversifying your investments can easily reduce the level of risk across different types of assets, which includes stocks, bonds, and equity in your portfolio. While you diversify in multiple fund categories, you are also diversifying your risk. For instance, if you are investing all your money in one instrument, you have a 50% chance that you might get the desired returns. But what if it doesn’t perform well. You might fall into a disastrous situation financially if you lose your money. In fact, a mutual fund allows an investor to diversify into many different schemes more straightforwardly and cost-effectively.

So don’t put all your eggs in one basket. Diversify!

Mistake 5 – Investing in a Lot of Mutual Funds

To diversify your portfolio, you need to invest in many schemes. This doesn’t mean that you invest in a large number of mutual funds thinking that they are diversified. A large number of schemes will create a large portfolio that can become difficult to manage. Adding schemes does not add value as every instrument holds a certain amount of risk. So, build a portfolio with enough schemes that you can manage.

Mistake 6 – Not Tracking the Performance After Investing

Once you have invested in mutual fund schemes, it is not the end. After you have made your portfolio, you are aware of the risk appetite that you have. Invest in various categories such as gold, equity, or bonds. Each fund performs differently according to their respective market and governed by the scheme’s objective. As an investor, after investing in a mutual fund, you need to track the performance of the scheme from time to time. A periodical review of your portfolio can help you identify the under performing schemes. Accordingly, you can take the right decision at the right time and avoid facing any losses.

Mistake 7 – Ignoring the Tax Liability on Withdrawals

Before you invest in mutual funds, you need to be aware of the tax guidelines that are applicable in the mutual funds. The return that an investor gets in return is always taxable. Therefore, you need to be aware of this and understand the taxation on mutual funds. When you are aware of the tax rules and guidelines on different types of mutual funds, you can calculate the amount of return that you will get in your hand after the respective deductions.

Singapore has a very robust and successful economy driven by strong fundamentals, but its market can be easily susceptible to global trade. So, know your risk appetite, choose the right type of mutual funds, and get the returns that you expect.

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