During a bull market, it is imperative to be lured towards promising schemes and securities. Mutual funds remain no exception in such case. Bull markets attract extensive investments, a large part of which are un-thought of. Although investing is a good source of generating income, no investment decision should be taken in a hurry. Exercising vigilance and caution is highly important to make decisions that last longer and generate stable income. Here are some mistakes people tend to make during a bull market which should be avoided;
- Starting new short-term SIPs
Starting a new SIP is not the problem but tenure is. People generally forget to look at the larger picture. A short-cap or mid-cap SIP ‘used’ to be beneficial in the yester-year markets giving nearly 80% annualized return over a period of three years, 1997-2000. But the same market fell down drastically and the three-year returns showed a ‘Red Flag’ during 2000-2003.
People who entered the market with full enthusiasm left it disappointed and sad.
The same market reflected a good 36% growth in the next two years i.e. during a total tenure of 5 years. Clearly, people who exercised control over their disappointments and stayed patient during the volatility made the most out of it in the long run.
If you find the markets to be high-performing and wish to start a new SIP, make it a long-term one. SIPs need their own good time to give great results and Generate Wealth. Read more at
- Reaching out to balanced funds for dividends
Balanced funds are an excellent mix of safety and growth. They offer the securities from both debt and equity markets. Balanced funds have a special characteristic of generating high income in the long-term. Off-late these funds have been used by fund houses to attract customer base which expects regular high income that too in a comparatively short-term.
Balanced funds used to provide with dividends on an annual basis generally but now they have been used to make payouts on a monthly and quarterly basis as well. This although seems very luring and promising but is not a sustainable approach.
Balanced funds make payouts from the surplus or wealth accumulated over the years which will not last forever. If you wish to invest in an instrument which promises regular payout, go for a balanced fund investment in growth plans and opt for SWP (Systematic Withdrawal Plan).
With SWP you can fix tenure of dividend withdrawal and reap the benefits of balanced funds.
- Investing too much in Small and mid-cap funds
While they have been generating exponential results but choosing your fund based only and ‘Past Experience’ is not a good strategy at all. Small cap and mid funds have generated excellent dividends in the last few years and hence are fetching humongous investments. If you are also planning to make an investment in the small-cap or mid-cap fund, this is the time to take a break and think about it. Selecting a fund based purely on its past performance is not a good idea, there are other factors as well which affect the performance of the fund. ‘Risk-Return profile’ being one of the most important in such volatile markets also needs to be considered.
Now that markets are behaving in favor of small and mid-cap funds, does not mean they will continue doing so. No fund has even been spared from market volatility; the extent may vary.
If you already have made an investment in these funds, stick to it, do not increase your investment amount for the time being. For those of you who plan to do so, consider large-cap funds and multi-cap funds as well.
- Stopping SIPs mid-way
This is a crime to commit in investment terms. If you have made an investment, stick to it for at least 3-5 years for it to show the best of its performance. Investors, generally Indian investors, have a tendency to redeem their SIPs the moment markets show a good high.
Yes, they make a profit but on a very trivial and superficial level. The same investor then regrets the decision when the redeemed funds show exceptional performance in the long-term.
In 2017, the redemptions were too high, nearly 1.9 lakh crore worth which is 45% more as compared to 2016 (Source: AMFI). Since the markets are volatile, there is always a possibility of a market correction is an undeniable fact but making aggressive decisions like redeeming money fully or partially is not a good investment decision. If on a low, the market is bound to bounce back and generate better results.
Also, the biggest disadvantage of redeeming your SIPs mid-way is that it will also put at risk your long-term financial goals.
- Making an un-informed switch- regular to direct
There is no denying the fact that direct plans yield better and higher dividends as compared to their regular counterpart. People who have invested the regular plan of a fund have earned a little less than the ones who chose the direct plan. The difference lies in the expense ratio which is between 0.5%-1.25% in regular plans annually. Read more about Direct and Regular plan.
This difference although may seem minor while investing holds a good value while comparing returns.
Seeing this, investors generally make a switch from the regular to direct plan, their own selves which may not be the right thing to do. If you are a pro at investment terminologies, go ahead but if you are not well-versed with the nomenclature and formalities, seek expert advice. Try Piggy Premier .
There is nothing in switching from regular to direct plan but an un-informed decision may prove fatal. Take expert advice and know the consequences well in advance. With piggy, you can switch from regular to direct plan with a single click, use Smart Switch to do so.
While you put your hard-earned money in the investment cycle, make sure you are well-read about the market trends and have a working knowledge of the system. Taking a prompt action based on hear-say and past performance is not a good strategy to opt for.
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