Fund management refers to the process of dealing with the inflow and outflow of an individual’s or institution’s fund. It is a vital aspect of financial management and aims to maximize profits from your investments in mutual funds.
Learning the art of fund management requires time. And most beginners find themselves making more mistakes than they had expected. To help you avoid some of the errors that impact your returns, we’ve listed some of the common fund management mistakes here.
- Forgetting to diversify the portfolio
One of the most repetitive portfolio management tricks is the diversification of funds. It is an essential strategy to reduce overall exposure to investment risk. However, most new investors build their portfolios with their focus around a specific investment option only.
- Over diversifying
Another common mistake that investors make in fund management is going overboard with diversification. In an attempt to avoid restricting their portfolio to a handful of investment options only, they add many investments, each having a minor share of the investment capital.
- Building a portfolio that doesn’t match your financial goals
Charting out your financial goals isn’t enough. Your goals don’t have any purpose if they are not backed by the right investment options. Beginners believe that investments, regardless of whether they are mutual funds, stocks, PPFs, or debt funds, will support them in fulfilling their financial goals.
But this is not true. You can satisfy your financial objectives only if you match your investments with your goals. For example, if you want to save for your retirement, you must invest in PPF or start a SIP in mutual funds since they have a long-term outlook.
- Not focusing on the risk appetite
Risk appetite plays a vital role in portfolio creation. Many beginner investors miss out on factoring in their risk tolerance level, but it can tend to be a poor decision. For example, if you are a conservative investor, do not invest in significantly riskier options.
Thus, analyze your risk to determine your risk tolerance. After the analysis, you can create a portfolio on the basis of your risk appetite.
- Insufficient research
Many investors dive straight into investing without any research. Skipping research can turn out to be very costly in the future. A company with poor financials can perform well in the short term, but it may not have long-term sustainability. With proper research, you can quickly identify if there are any concerns. You can also measure the current performance of a company’s stock and its prospects.
A lot of financial research and knowledge goes into the complex process of fund management. Thus, you must rely only on a trusted and experienced fund manager. You must look into their industry experience, rankings by reputed bodies, and records of the funds they are actively managing. The Tata Capital Moneyfy App is your one-stop solution for wealth management. Download it to assess how much money you need to fulfill your financial goals using the EMI calculator, SIP calculator, insurance calculator, and put your money into action.