3 common mistakes investors make while investing through Mutual Funds.

NFO new fund offering in mutual fund

(a) Investing in New Fund Offering - NFOs

(b) Investing in thematic / sectoral funds

(c) Investing in Multiple schemes

Let understand this:

(a) NFO - If there are multiple funds available in a particular category with years of performance history, there is no logic to invest in an NFO. U only invest in an NFO when the scheme is offering something different which u need to invest in but is not already available.

(b) Investing in thematic/sectoral funds - The prime reason to invest in Mutual Fund is to have a professional fund manager help you diversify your investments. You are exactly doing the opposite by investing in sectoral funds.

- Moreover, sectoral funds require a good exit strategy which most investors don’t have. Don’t invest in sectoral funds without an exit strategy in mind.

(c) Investing in Multiple Schemes - Each Mutual Fund would invest in 30-40 stocks that the fund manager has conviction in. - The reason you expect MFs to do better than the index is because the fund manager buys high conviction stocks/sectors and does not buy everything.

- Imagine investing in 15 schemes with each scheme having 30-40 stocks. You would practically own the entire market (15*40) and with that you can’t beat the market. - You don’t need more than 4-5 equity funds in a portfolio.

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At @vittadacapital we write to simplify investing & capital markets. Happy Investing