5 Common Mistakes Small Investors Make

By | December 7, 2016


The general rule in finance is that investing is more rewarding than saving money. The right investments allow wealth creation for investors.

However, many investors inadvertently lose out due to their financial actions and the financial practices they follow.

We’ll tell you about a few common financial practices that small investors should avoid to improve their investment portfolio in the long run.

  1. Waiting to collect a lump sum

Are you waiting to reach your savings target before you venture into investing? Hoping to salt away a sizable sum of, say, Rs. 50,000 over a period of 10 months, rather than starting a periodic investment with Rs. 5,000? This is not a very good strategy to investing. Why, you wonder? That’s because it is possible that the accumulated money will be used on an unexpected or impulse purchase. It happens to everyone, we know!

Plain saving money in a Savings Account is not very rewarding because failing to invest leaves you with a rather low interest rate (around 4%) on your hard-earned money.

Follow this rule of thumb and you’ll be set: invest as you earn. Are you drawing a steady salary? Why not invest monthly, then? Go the SIP way!

  1. Saving over investing

Savings products like Fixed Deposits and Recurring Deposits offer a degree of safety for your capital and rather low returns when compared to investment products such as Mutual Funds and Equity Linked Savings Schemes.

Avoid making investments and you can forget about getting returns that beat inflation and are tax-efficient. The interest income you get on Fixed Deposits is taxable, remember?

However, savings instruments like Fixed Deposits and Recurring Deposits are ideal if you want to set aside money towards any short-term goals.

Additional Reading: Investment Options For Everyone

  1. Forgetting about goals and investment horizon

So you had a Systematic Investment Plan for the last five years. Now the investment tenure has reached maturity and you are going to encash your accumulated corpus.

Wait. When the time comes to encash your investments, what is important is that you need the money to achieve a specific goal. If you’re going to use the liquidated funds from your investment to pamper yourself, then stop and think again.

Here’s what you can do. After the investment tenure of your Systematic Investment Plan, you can remain invested until you need the money to realise your goal. That gives you added returns on your investment. There’s no reason to complain, is there?

  1. Not increasing your investments periodically

You got a pay raise but it slipped your mind to make the necessary increment in your investments? Try not to let this happen. Your investments should ideally keep pace with your income. This will ensure that your investment corpus keeps up with your advancing standard of living.

  1. Relying on past performance of equity markets

Judging your present investments based on past fund performances is a common practice among investors. This, however, is not always a sure-shot method to successful investing. A good way to invest is to adopt an asset-allocation method in your investment portfolio. It would also be good to rebalance your portfolio periodically.

If you hope to build a sizable financial corpus to help you realise important goals in your life, the right financial planning, starting early and staying on track is very important to achieve success.

Additional Reading: Understanding Mutual Funds

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Category: Investments Mutual Funds

About Dheeraj Kapoor

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