With so many changes happening on the political and economic front in India, a number of investment experts are of the opinion that the country is moving towards a time which would be defined as long-term bull market.
Now, while it is indeed undeniably easy to make money in a bullish market, it is even easier to make mistakes and let go of the return potential that the funds would have generated.
Here’s some common mistakes to avoid while investing in a bull market:
Mistake 1: Trying to analyze the market scenario and delaying investments even at a stage when the bull market is on a brink to start.
There are a number of investors who simply wait way too long in an attempt to analyze the right time to invest in the market. What happens when you wait too long is that you might not even be able to identify when the market became bullish. And till you realize that the market has run up, you must have already missed the opportunity. The fact is that identifying the market timing is not easy and even the biggest of the investors rarely get their timing right. So what you should opt for is a goal-based investment in place of time-based.
Mistake 2: Ignoring the asset allocation that you should focus on
When in a bull market, the news channel is filled with stories of how mutual funds and hot stocks are the right investment choice. While it is definitely important for investors to choose the right mutual funds and stocks in order to get high returns, what investors don’t consider is that a huge proportion of their portfolio return is attributable to allocation of asset and only a very small part of the returns can be pinned on fund or stock selection.
Let us explain this with an example. If you choose a mutual fund that gets you 25% returns and 90% of portfolio is invested in the fixed income asset getting you 6% after tax, the composite return that your portfolio gets you is still lower than just 7%.
So, what you should really pay attention to is allocation of your asset.
Mistake 3: Investing in hot midcap funds
What happens is that the mid-cap stocks generally get beaten a lot more than the large-cap funds in a bearish market. As a result, a few of these stocks then rally sharply in the bullish market, when the large-cap stocks valuations seem stretched. Now, in bull market, the mid-cap funds tend to perform a lot better than the large-cap funds. However, when there are a huge numbers of mid-cap funds, the upward trend is usually dominated by momentum and not fundamentals.
In a scenario like this, choosing a quality mid-cap stock requires necessary experience and skills.
Mistake 4: Closing down your SIP in time of downturn
There are many skilled investors who have generated good returns from the market by purchasing stocks when everyone was selling, but regular investors find it beyond their capability to survive a volatile market. So what they end up doing is stopping their SIP payments, which is a huge mistake.
SIPs are the one mode of investment that makes it possible for the investors to purchase equities at low cost when market is facing a downturn. Because SIPs work with the mantra of ‘Rupee cost averaging’, when you invest in a specific amount every month or at fixed interval, you can buy a lot more units when the prices are very low and then lesser fund units when prices are on the higher side. The systematic investment plans make sure that you get great returns on investment so that you meet your long term financial aim with much ease.
Mistake 5: Not Leaving the Side of underperforming funds
While the investors should maintain a long-term horizon when making investments in Mutual Funds, they should at the same time make sure that they are not getting cling on to less performing funds.
There are investors who buy extra units of the low performing funds just to average out the NAV or purchase cost. And while this may work in terms of trading, but if your aim is to invest, stay away from this strategy. As an investor you should always monitor the investment on a continuous basis. In case you find some low performing funds which have been showing poor performance since the last 2 or 3 years, sell them and switch to high performing mutual funds.