In the last decade, mutual funds have transformed the Indian investing landscape. SIPs (Systematic Investment Plans) are now household terms, and campaigns like “Mutual Funds Sahi Hai” have successfully educated millions about the benefits of disciplined investing.
Yet, despite this progress, many investors still make hidden mistakes that quietly eat into their wealth. These mistakes don’t make headlines like market crashes, but they’re far more damaging in the long run.
The problem is not with mutual funds—it’s with investor behavior. Let’s explore the common pitfalls in a typical mutual fund journey and learn how to avoid them.
Hidden Mistakes in Your Mutual Fund Journey
Mistake 1: Chasing Past Returns
One of the biggest mistakes investors make is choosing funds based solely on past performance.
👉 Example: In 2007, Reliance Growth Fund was one of the best-performing funds with stellar double-digit returns. Many investors rushed in, expecting the dream run to continue. However, when the 2008 crash occurred, the fund underperformed, and late entrants experienced negative returns.
This shows a simple truth: yesterday’s winners may not be tomorrow’s champions.
Why This Happens
- Human tendency to extrapolate recent success.
- Media highlights “Top 10 Best Funds” lists.
- Lack of awareness about fund philosophy.
What To Do Instead
- Consider consistency over 5–10 years, not just 1–3 years.
- Check the fund manager’s investment style.
- Determine whether the fund aligns with your risk profile and goal duration.
👉 Lesson: A fund should fit your portfolio needs, not just shine in rankings.
Mistake 2: Ignoring Asset Allocation
Most investors put all their money into equity mutual funds, believing they offer the best returns. While equities are wealth creators, they also bring volatility.
👉 Case Study: Ramesh, a 35-year-old IT professional, invested all his savings in small-cap funds during 2017’s bull run. When markets corrected in 2018–2019, his portfolio fell by 40%. With no debt allocation to cushion the fall, he panicked and withdrew at a loss.
Why Asset Allocation Matters
- Equities grow wealth but fluctuate.
- Debt adds stability and provides liquidity.
- Gold serves as a hedge against inflation and currency risks.
Even the best fund cannot compensate for poor allocation.
👉 Lesson: Decide your equity–debt mix first, then pick funds.
Mistake 3: Timing the Market with SIPs
SIPs work best when run without interruption. But many investors stop SIPs when markets fall—exactly when they should continue.
👉 Case Study: During the 2008 financial crisis, many SIP investors panicked and stopped contributions. But those who continued saw their wealth multiply when the markets recovered by 2014.
For example, an SIP of ₹10,000/month started in January 2007 and continued until 2017 (even through the crash), growing to over ₹20 lakhs. Those who stopped in 2009 missed out on a significant chunk of compounding.
👉 Lesson: SIPs are designed to average out volatility. Don’t interrupt them during downturns.
Mistake 4: Ignoring Costs and Taxes
Indian investors often focus only on returns but forget the silent costs:
- Expense ratios reduce net returns.
- Exit loads penalize early withdrawals.
- Capital gains tax impacts real profits.
👉 Example: A friend who invests ₹1 lakh/year in regular plans without realizing the higher expense ratio (1% more than direct plans) could lose ₹15–20 lakhs in 25 years due to compounding costs.
👉 Lesson: Costs compound just like returns—always account for them.
Mistake 5: No Link to Goals
Investing in mutual funds without goals is like boarding a train without knowing the destination.
👉 Case Study: Priya, 28, invested in multiple ELSS funds only for tax savings. She never linked them to her retirement or home-buying goals. After 3 years, she redeemed them to buy a car. Had she kept them invested, the same money could have grown into a sizeable retirement corpus.
Why Goal-Based Investing Works
- It gives clarity on fund choice (equity for long-term, debt for short-term).
- It prevents premature withdrawals.
- It helps track progress meaningfully.
👉 Lesson: Every SIP should have a label—child’s education, retirement, home, emergency.
Mistake 6: Too Many Funds in Portfolio
Investors often believe diversification means buying more mutual funds. But owning 12 equity funds is not diversification—it’s duplication.
👉 Example: An investor who holds eight different large-cap mutual funds essentially owns the same Nifty 50 stocks multiple times. Instead of spreading risk, they create clutter.
Ideal Portfolio Size
- 1–2 equity diversified funds.
- 1 mid-cap fund.
- 1 debt/hybrid fund.
- Optional: 1 international fund.
👉 Lesson: 4–6 funds are enough for most investors.
Mistake 7: Ignoring Review and Rebalancing
“Set and forget” works for compounding but not for allocation. Markets move, funds change, and goals evolve.
👉 Example: Arjun started investing ₹15,000/month in 2012 for his child’s higher education. By 2020, the corpus was equity-heavy (80%) as markets grew. Without rebalancing into debt, he risked losing money if a crash happened near his goal year.
Why Reviews Matter
- Fund managers change.
- Underperforming funds need replacement.
- Asset allocation drifts over time.
👉 Lesson: Review annually, rebalance when allocation drifts 5–10% away.
Mistake 8: Exiting Too Early
Mutual funds reward patience, not speed. Many investors exit after 2–3 years when returns look average.
👉 Case Study: In 2013, an SIP investor redeemed after 3 years with only 6% CAGR. If they had stayed till 2020, returns would have crossed 12% CAGR.
👉 Lesson: Compounding is slow at first but exponential later. Don’t give up before the magic begins.
Mistake 9: Misusing ELSS Funds
ELSS (Equity-Linked Savings Scheme) is a popular choice for tax savings. But many treat it as a 3-year product.
👉 Example: Neha invested ₹50,000 in ELSS in 2016 for tax deduction and withdrew in 2019. Instead of wealth creation, she only got average returns. If she had stayed till 2023, the same investment could have doubled.
👉 Lesson: ELSS is primarily an equity fund with tax benefits. Treat it as a long-term solution, not just a tax hack.
Mistake 10: Blindly Following Tips and Trends
Social media and WhatsApp groups are full of fund tips.” Many young investors jump into sectoral funds (such as IT, Pharma, and PSU) without fully understanding the risks.
👉 Example: In 2020, pharma funds boomed due to COVID. Many entered late, only to face correction in 2021.
👉 Lesson: Always evaluate sectoral/thematic funds carefully. For most investors, a diversified fund is sufficient.
Bringing It Together: A Smarter Mutual Fund Journey
So, what does a mistake-free mutual fund journey look like?
- Start with clear goals.
- Decide your asset allocation.
- Pick 4–6 quality funds.
- Run SIPs uninterrupted.
- Review annually, rebalance if needed.
- Stay invested for the long term.
This simple strategy beats 90% of mistakes.
Final Words
Your mutual fund journey doesn’t fail because of market crashes—it fails because of behavioral mistakes: panic selling, chasing returns, ignoring goals, or over-diversifying.
The good news? These mistakes are preventable.
💡 Remember: The best investors don’t predict markets. They avoid mistakes, stay disciplined, and let compounding do the heavy lifting.
Disclaimer
The information provided in this blog is for educational purposes only and should not be considered as financial, investment, or tax advice. Please consult a qualified financial advisor before making any investment decisions.
VSJ FinMart is an AMFI-registered mutual fund distributor (MFD) and does not provide investment advisory services. Mutual fund investments are subject to market risks; please read all scheme-related documents carefully before investing.