Common Mistakes to avoid while investing in Mutual Funds in the UAE

Common Mistakes to avoid while investing in Mutual Funds in the UAEPolicybazaarAverage Rating / 5 ( reviews)
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Very often people make their investment choices based solely on the return component of the scheme, financial experts on the other hand advice investments to be planned with a definite goal in the long run. Investment in any financial tool must be made in accordance with an individual’s financial goals. Investing in mutual funds is suitable for all categories of investors with amounts ranging from AED 500 to infinity on a monthly, quarterly, half-yearly or annual basis.

Despite the increasing popularity, investing in mutual funds does not guarantee high rates of return. Some of the common reasons for this are lack of proper knowledge or indisciplined approach towards investment program. While investing in mutual funds investors should regularly monitor the performance of their fund. Regular monitoring provides ample time to strategically assess and make changes in the investment scheme to maximize returns and minimize the risks.

The sustainability of mutual funds to include a diverse investor pool makes it one of the best investment options available in the market. Investing in mutual funds allows investors from every level of economic strata to create and accumulate wealth which helps them to build a corpus for their futures. Apart from offering high rates of return mutual funds diversify an investor’s financial portfolio and reduce the potential risks that can lead to loss of capital.

While it is evident that investing in mutual funds has been made easier and accessible, there are some common mistakes that several investors including both rookie and pros tend to make. Today’s thread will shed light on common mistakes to avoid while investing in mutual funds in the UAE.

Investing in too many funds

It is observed that investors often invest in too many funds intending to increase net returns. Including too many funds in your investment portfolio causes erosion of returns caused by overlapping. Picking up a large number of funds at the same time increases the probability of low performance of multiple funds in your investment portfolio which can hamper overall returns. Ideally investing in mutual funds should be done with a definite purpose and the maximum number of funds to be included in the investment portfolio at once should be 3 to 5 funds.  

Investing in mutual funds without Purpose/Financial goal

Having a definite financial goal or purpose and investing in it ensures that the investors stay the course of investment till the time they accomplish their goals. Unplanned investment decisions and those taken without a purpose may lead to investing in mutual funds that may not be the best-suited schemes for the investor’s needs. Allocation of funds in a mutual funds plan should be carried with a financial goal in place.

Ignoring the Risks

Mutual fund investments are subject to market risks therefore before investing investors should determine their appetite for tolerating risks. Depending on the investor’s capacity to tolerate risks one can invest in mutual funds to earn profits that are in line with their risk profile. Investing in mutual funds without considering their risk profile, an investor might subject themselves to anxiety during market swings. For risk-averse investors, debt funds are suitable as they are less volatile and offer good returns in normal market conditions. Investors with a high-risk tolerance capacity can choose to invest in equity funds due to their high volatility.

Investing with a Short-Term Approach

Investing in mutual funds with an approach centered on short-term gains may not reap many benefits. People often make the mistake of booking profit on funds offering better returns. Choosing this strategy will deprive investors of potential future gains that can be reasonably significant in the long run. Investing in mutual funds with the motive of extracting maximum advantage requires consistency and long term dedication.

Not Investing Enough

Investing in mutual funds is carried out with the primary objective to create and accumulate wealth to facilitate a steady flow of income during economically unproductive years of life. It is crucial to realize that investing the bare minimum would lead to the accumulation of a certain level of wealth taking into account emergencies like loss of employment, inflation, market swings, etc. SIP should be stepped up gradually over time to lead to higher wealth accumulation.

Pausing SIPs suddenly

Investment in the long term is highly dependent on healthy financial habits. The core idea of getting indulged in SIP is to cultivate disciplined investing habits while contributing a small fragment from regular earnings to build a corpus. Unplanned exits from SIP is detrimental to you achieving your financial goals, moreover, it is an indicator of lack of consistency, commitment, and planning. Commitment and consistency towards the SIP enhance and boosts the returns.

Attempting to Time the Market

A lot of investors investing in mutual funds in the UAE try to predict and time the market to maximize the returns on their investment portfolio. According to financial experts, returns in actual are not as much about timing the market swings as it is about staying consistent with the investment horizon to get the best results. SIP or systematic investment plan approach involves investing periodically to neutralize the highs and lows of the market which eventually provides optimum returns.

In a Nutshell!

With technology turning more and more user-friendly every day, easy access to banking and investment services is just a few clicks away. Ideally investing in mutual funds should be followed by regular monitoring of the funds to align investors with their investment goals and maximize returns.

Investing in mutual funds is easy what stands the test of investors is their consistency, commitment, and dedication to the investment plan.

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