In the Mutual fund sector there are a lot of mistakes a retailer can make in their investment journey.

We present you few of our learnings so that one can take informed decision while investing in mutual funds

@iRadhikaGupta @dmuthuk @KalpenParekh @TheMFGuy1

A thread 🧵👇 Image
1. SIP is not the exclusive method to invest

¤ SIP is defined as a method of investing a certain amount periodically. It is one of the methods of investing in a mutual fund. Don't be misled by the fact that mutual funds are all about SIP.
¤ Strong focus over SIP has led people to change their investment style, ignoring the impact on their returns. When there is a sharp correction in the market, it is much advisable to invest in a lump-sum.
¤ Along with that, one should know when to tweak their SIP. When the market is undervalued, it is a better option to make large SIPs relative to the case when the market is expensive.
2. Define a Goal.

¤ Goal planning gives clarity, which helps us to rule out various emotional biases about the timing of exit.

¤ In order to achieve the target, a goal based plan is necessary. The supreme Goal should be capital preservation.
¤ People often enter high promising risky schemes to make quick money which are not suitable for them. Thus, they are more prone to higher chances of losses. Image
3. Never run towards the top quartile scheme

¤ Each Mutual fund portal rates different schemes through their method of quartile ranking. Investing solely based on such quartile rankings can be a disaster because each website has a unique method to calculate quartile rankings.
¤ There are lots of schemes which give top performance once in their lifetime, but the true ability of a scheme is when it can generate alpha consistently.

¤ One should look for other factors as well. Here are some of the factors by @KalpenParekh Sir
4. Mutual fund & trading don’t go hand in hand

¤ Mutual funds and trading are two different things, mixing them doesn’t seem to be a great deal.

¤ Mutual Funds by nature have restrictions like Exit load and payment cycle, which hinders the Trading procedure,
¤ Retail investors often jump between similar schemes to get the best return, but this continuous buy and sell makes more money for AMC’s at the expense of investors. Image
5. Keep a check on your Expense

¤ A heavy expense fee compared with a lighter one can reduce the returns to a great extent over a long horizon.

¤ To Justify the heavy expense charged, the fund manager should give out exceptional returns, which is a difficult task.
¤ Only few funds have been able to achieve this, that too for a limited period. So having an eye towards the expense fee is a must.

¤ There should also be a proper focus towards direct plan instead of a regular plan as direct plans command a lower fee.
¤ Even while choosing advisory service there are
‘Fee only’ advisors, who charge a fixed sum for the overall fund management and ‘Fee based’, advisors invest the money into regular schemes at a higher expense rate.
‘Fee only’ is the cost effective way to get advisory services Image
6. STP & SWP an Undervalued tool

STP = systematic transfer plan
SWP = systematic withdrawal plan.
These tools can play a crucial role in one’s investment journey
¤ It is important to decide when one should start the SIP. But it is equally important to decide when to transfer from one scheme to another and when to start with the withdrawal plan.
¤ STP is beneficial when one wants to transfer funds from a liquid scheme to a growth scheme; it is usually when the investor feels that markets are undervalued.

¤ This way at least the money will stay at par with the rate of inflation.
¤ SWP is a withdrawal method that would reduce reinvestment risk of the corpus withdrawn. It can create a monthly income source if used wisely.

¤ It helps in breaking the extra charges one might pay if they withdrew their corpus in a single short.
7. Too much diversification can diminish the return.

¤ Mutual fund by definition is an instrument that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. Making the fund a diversified source itself.
¤ Having multiple schemes of the same asset class won't provide much diversification benefits. Rather, it will reduce the rate of capital appreciation because of small allocation in numerous stocks.
¤ Advisors urge their clients to invest in a variety of schemes coz. of high commission they get in selling different schemes.

¤ By investing in too many mutual funds, clients get diversified into a wide variety of stocks, making it difficult for themselves to generate alpha.
8. Sectoral fund is not everyone's cup of tea

¤ There are risks involved if one is focused on a specific sector. Something goes haywire in a sector, the entire fund can take a hit.

¤ The recent increase in NPA of banks can lead to a difficult situation in banking sector fund.
¤ People invest in doomed sectors believing that there will be a turnaround story. They need to consider the element of time and the missing out on other investment opportunities.
¤ There are few AMC’s which provide sectoral funds. Thus, there is less variety in sectoral funds which usually commands a high expense ratio. Image
9. Will the fund manager sustain?

¤ Mutual fund schemes are managed by fund managers. They play a crucial role in selecting the securities for the fund, so having an idea about Manager is a must.
There are few points for selecting a manager:

¤Was the fund manager able to survive a market downfall?

¤ For how long has he been managing the fund? If he is a newbie then what was his previous experience?

¤ Does the fund manager do what he says, i.e. Does he “walk the talk.”
10. Advisory a need or not

¤ Unitholders prefer advisory services because they don't have a proper idea about when and where to invest in a mutual fund

¤ Most Advisors have a tendency to persuade their clients to invest into regular schemes, which have a higher fee structure
¤ They also prefer to continuously rebalance their investors' portfolios, irrespective of whether their client makes money or not, in order to get higher commission and meet the sales target.
¤ This makes the client incur more expense and thus, it affects their return.
¤ As every fund manager is selected after a deep research, in the same way an advisor should also be researched well
Before availing the advisory service, one should try to find out:

¤ His history with ex- clients and current clients
¤ How much experience does he command in this field
¤ On what strategies the potential advisor analyzes the fund managers
11. Asset wise portfolio mix can be a good hedge

¤ A mutual fund doesn't always mean having all equity. One should have a balance between various asset classes like Debt, gold, etc. Their uncorrelated nature can help in volatile market situations.
¤ Taking a lesson from covid situation, various AMC’s launched Multi asset schemes. The Main purpose was to invest the money into a different pool of assets and tweak them as per the market situation.
¤ Having a portfolio mix can be a good hedge against the inevitable.

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