What Mistakes Should Investors Avoid When Evaluating Mutual Fund Returns?

By Author: Quantum Mutual Fund
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Every investor, at some point in time, makes a mistake while evaluating investment decisions. There are five valuable lessons learned in the investing arena from these mistakes. Let’s understand them in detail.

1. Mutual Fund returns over the past year: This is the most popular form of comparing two mutual funds. Comparing mutual fund returns in India over the last year may be the starting point of assessing mutual funds. However, you should look beyond 1 year to make a realistic expectation of the mutual fund returns.

2. Investing without a financial goal: Your investment decision should not be based upon recommendations of friends and a good financial advisor is a must. For example, suppose you are planning to invest for your children’s education and you have 10 years, you can consider investing a diversified equity fund portfolio instead of parking your money in a debt fund or a fixed deposit. Once you have a financial goal, you can use a mutual fund return calculator that helps you to get an idea of how to calculate mutual fund returns with time.

3. Timing the market: Another mistake that mutual ...
... fund investors make is hasty decisions to redeem or sell their investments due to market uncertainty. Do not invest with the intention to reap short-term profits. You also need to understand that mutual fund returns are taxable. On redemption, the capital gains are taxed as per the holding period. For equity mutual funds, short-term capital gains are taxed at 15% while long-term capital gains are at 10% for gains exceeding Rs. 1 lakh. Taking a hasty decision can be detrimental to your wealth creation journey.

4. Mutual fund returns comparison without factoring your risk appetite: You need to assess whether, for every risk you take, you are getting commensurate performance/returns? Solely evaluating mutual fund returns won’t suffice, you need to assess the risk-adjusted return using performance indicators such as standard deviation and Sharpe Ratio.

5. Over-diversification: Diversification is a good thing, but over-diversification is not. For the sake of earning additional mutual fund returns, do not resort to investing in too many mutual funds.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

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