Financial advisors always emphasise the importance of making a long-term plan, setting clear goals and objectives, and diversifying your portfolio. However, what if you’ve followed all their advice and your investments, especially mutual funds, are still not performing as expected? With over 2,000 mutual fund schemes, you might have invested in the wrong ones, or some schemes have simply failed to perform up to par.
Let us look at what happens when you invest in the wrong mutual fund scheme:
Firstly, a scheme that aligns with your goals and objectives may still suffer from poor judgment or stock bets made by the fund manager, which can negatively impact your returns. Secondly, some investors may invest in a mutual fund without fully understanding the product. Sectoral funds, which are designed for high-risk investors, can be a wrong decision for risk-averse investors.
Furthermore, investing in mutual funds meant for short-term goals when you have a long-term investment horizon can lead to lower returns or an inability to reach your targeted goal amount. Additionally, following recommendations from friends and relatives to invest in a specific mutual fund scheme can result in financial losses. Lastly, due to market volatility, investors might make the wrong decision to redeem their mutual fund units or stop Systematic Investment Plans (SIPs) too early, which can lead to lower-than-desired returns.
How can you correct wrong mutual fund investment decisions?
• Firstly, one way to assess if your investments are starting to go awry is by comparing the performance of your schemes with similar kinds of peer funds in the same category and relevant benchmarks.
• Review your portfolio at least every quarter and take action only if underperformance persists for at least above two years.
• For informed or DIY investors, evaluate the reasons you initially invested in a particular fund, whether the fund still follows the same process, and its risk profile. If a specific fund has been underperforming for a long time, it may be wise to invest in other funds.
• Negative or lower returns do not necessarily indicate a wrong decision. Markets and mutual funds can underperform for short periods. A financial advisor can help assess underperformance and determine if it may continue due to fund-specific reasons such as a change in the fund manager or fund attributes.
If you have suffered significant losses from investing in the wrong mutual funds, here are steps to correct those investment decisions. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
