Mutual Funds

Biggest Mistake Mutual Fund Investors make

Is it possible to do everything right and yet lose money by investing in Mutual Funds? The answer is ‘yes’.

Recently, I met an investor who did ‘almost’ everything right – but did not make any money after investing in mutual funds consistently for over 5 years.

Here is what he did:

  1. He started his ‘SIP’ in 2014 by investing ₹ 20,000 every month.
  2. As his income increased, he increased his investments by ₹5000 every year.
  3. 20k every month in 2014, 25k every month in 2015, 30k in 2016… and so on.
  4. In 2019, he increased his SIP by 10k – he was investing 50k every month.

The returns were poor in the first two years, but improved after 2016.

By the end of 2019, he had invested 23 lakhs in 3 different mutual funds – the gains were around 39% – which is decent considering the fact that he was investing 50k every month in 2019, as compared to 20k in 2014.

The guy was consistent with his investments. He was disciplined and did not sell during all the market corrections. Increased his SIP. And he was rewarded with good returns – 23 lakhs had become 32 lakhs.

In short, he was happy with his ‘comfortable’ financial situation.

This is when Covid came and turned everything upside down.

The market crashed. His portfolio which was showing a profit of 39% after 6 years of saving money and investing – had suddenly turned red.

  • 39% gains in 6 years, 36% crash in 2 months.
  • 32 lakhs had become 20.5 lakhs. His total invested amount was 23 lakhs. A loss of 11%.

Social media was full of horror stories, people were selling their mutual funds, stocks and getting out of the market.

Business channels were predicting doom, established businesses could shut down permanently, they said.

Stock market experts were giving targets of 6000, 4500 and some were saying it could test the 2008 low of 2500.

All of this was resulting in sleepless nights for the investor – who could not believe he had lost all his gains made over 6-7 years.

He stopped his SIP for the first time in 7 years.

“Fixed Deposits were safer, atleast the capital was safe” was the thought that was constantly coming into his head.

“Should I sell everything now and buy when the Covid situation improves?” he kept thinking.

When the market was falling every day, he could not muster the courage to sell at such low prices. Especially when he had lost nearly 3 lakhs of his investment amount.

Soon, the market started going up. Within a month, his portfolio had risen 25% again.

  • 20.5 lakhs had gone up to 25-26 lakhs.
  • His total investment was 23 lakhs.
  • Net gains of 2-3 lakhs.

At this time, back in April – May 2020, Covid cases began to cross 1000 per day. Soon, it was crossed 2000 and then 5000 per day. These were big numbers back then and there were rumours of a long period of lockdown.

This is when the market started correcting once again. Nifty from a high of 9880 on 30th April 2020, started falling and went below 9000.

There was fear all around and this time he decided to sell all his mutual funds for a small gain of 1 lakh.

  • 7 years of SIP. 23 lakhs invested.
  • He sells it all for around 24 lakhs.

The returns were dismal. But he was happy that the invested amount was safe.

The happiness did not last long as the Indian stock market witnessed a massive bull run – which lasted nearly 2 years.

The pain increased as he saw Nifty breach its pre-Covid high of 12400 and continued its relentless rise till it crossed 18500.

If he had not sold his mutual funds, the value today would be more than 60 lakhs. The kind of money which takes 10-20 years to accumulate when invested in FD or RD.

If he had continued his investment through SIP during the crash – the returns would be even higher.

Can he ever invest money in the stock market once again? It is very difficult because the prices now are a lot higher. He is waiting for a crash, which isn’t coming.

Starting again and waiting for 5-10 more years, has pushed him back on his investment journey.

Conclusion:

The Stock Market is a mind-game.

Mental Strength and Psychological Edge are very important. This is what we try to teach here on LearnStockMarket.in.

You can do everything right. But if you buy or sell at the wrong time, you will never get your desired returns.

Buying at the wrong time is a mistake which you will learn from and improve.

But if you sell at the wrong time, the market will never give you another opportunity to get back in.

Even if you prefer to invest through mutual funds or index funds – it is important to learn and experience market cycles, the emotions and sentiments which play a big role in rise and falls.

We hope you liked this article. Kindly do share it with your friends or other mutual fund investors you know. If you have any questions or need any help, you can drop a comment below or send us a message on Whatsapp.

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