Data suggests that investor returns are, in most cases, lower than investment returns. Mutual fund advisors say that this is because investors make some common mistakes that reduce their chances of earning the maximum returns. Puneet Oberoi, Founder & Director, Excellent Investment Advisorz, a wealth management firm based in Delhi, explained why mutual fund investors are not able to make money in the equity market. Oberoi was speaking at the ET Wealth Investment Workshop in Delhi on January 17.

Oberoi quoted data to explain how average investors have underperformed every asset class and haven’t even beaten inflation in the last 20 years. He also said that 33% of the investors fail at long-term investing because they don’t pay attention to their asset allocation. On the other 31% investors lose money because the try to time the market.

Table: Investor returns over 20 years

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Puneet Oberoi spoke about 5 common mistakes that mutual fund investors should avoid to succeed at investments and create wealth in the long term:

  • Herd mentality: Puneet Oberoi asked mutual fund investors to not do what everybody else is doing. “If your relatives are investing in equity mutual funds and are making good returns, you shouldn’t invest blindly. Many investors get into these schemes without understanding them and burn their hands,” said Puneet Oberoi. He also said that by the time everyone is making returns in the market and you get in expecting the same returns, the market starts falling. Oberoi said that this is why herd mentality is a failure in a cyclical market.
  • Performance chasing: Another common mistake committed by the mutual fund investors is chasing best returns. “No mutual fund scheme or category will top the return chart forever,” said Puneet Oberoi. He explained how many mutual fund investors lose returns while switching from one scheme to another. “Some investors pick an aggressive scheme for higher returns and then can’t take the fall and exit,” said Puneet Oberoi. He suggested investors should choose schemes that are in line with their risk appetite and stay invested to earn maximum returns.
  • Timing the market: This is one of the most common mistakes made by a lot of mutual fund investors. “Investors try to sell at the peak of the market and want to wait till the market touches the bottom. They don’t understand that there is no way someone can do this on a regular basis. In this process you lose out on the compounding and benefits of staggered investments,” said Puneet Oberoi.
  • Fearing a market crash: Oberoi asked many of his clients ask him before investing- ‘what if the market crashes’. He says that one can possibly never avert the possibility of a market crash in a long-term. Equity markets by nature are volatile and the markets can’t go up all the time. “The market falls will always be there. It is an investors choice to either fear and run away or stagger investments to make the most of the market falls,” said Puneet Oberoi. Via SIPs, mutual fund investors can accumulate more units when the market falls. SIPs averages out the purchase cost in the long term.
  • Having a short-term focus: Entering equity markets with a short-term goal can be too risky, said Puneet Oberoi. He told investors at the ET Wealth Investment Workshop that the chances of losing money in a short-term are high in the equity markets. “Don’t come in for 2-3 years. Many investors say they are long-term investors and then sell at the first bout of volatility. This eats into your returns. Stay focused on your long-term goal and invest with discipline across market cycles,” said Puneet Oberoi.





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