Dussehra Special: Kill these 3 financial demons to increase returns in MF/SIP portfolio

The overall MF industry's assets under management (AUM) jumped to nearly Rs 37 lakh crore in September, registering a 33 per cent growth compared to the year-ago period, according to Amfi data.

The SIP mode of investments in mutual funds has been increasingly gaining acceptance among retail investors over the past few years. Source: Pixabay

The SIP mode of investments in mutual funds has been increasingly gaining acceptance among retail investors over the past few years. Driven by record inflows into Systematic Investment Plans (SIPs), the overall mutual funds industry's assets under management (AUM) jumped to nearly Rs 37 lakh crore in September, registering an over 33 per cent growth compared to the year-ago period, according to Amfi data.

But, some mutual fund investors make few mistakes and thereby end up disturbing their returns on investments and delay in achieving financial stability. On the occasion of the Dussehra festival, celebrated to mark and honour the victory of good over evil, we have listed out the top 3 mutual funds/SIP financial demons which you should kill to achieve financial stability sooner and increase your returns on investments.

'Never compare NAVs to select mutual funds'
"Fresh retail investors often believe that funds with lower NAVs are cheaper and thus, opt for such funds for SIPs. However, a fund’s NAV can be low or high due to numerous reasons. For instance, as the NAV of a fund would depend on the market price of its portfolio constituents, the NAV of a well-managed scheme would grow faster than other funds. Similarly, newer funds would have lower NAVs compared to older funds as the former receive a shorter time to grow. Hence, never consider the NAVs for comparing various mutual funds. Instead, you must consider the past performance of mutual funds and their future prospects of outperforming peer funds and benchmark indices as a selection parameter," says Sahil Arora – Senior Director, Paisabazaar.com.

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'Never stop SIPs during bearish market conditions'
"Many investors stop their SIPs during bearish market phases due to the fear of incurring more losses. However, doing so beats one of the crucial benefits of using SIP for investing in equity funds, i.e. rupee cost averaging by buying more units at lower NAVs during market dips and corrections. As quality equities are available at attractive valuations during steep market or bearish market situations, continuing with SIPs during such periods can reduce your investment cost and help you earn higher returns over the long term. Investors with investible surpluses can further exploit bearish market conditions by topping up their SIPs with lump sum investments in a staggered manner as per their asset allocation strategy. This would further reduce their investment cost and can even help them to achieve their financial goals sooner," Sahil Arora said.

'Never factor in the recent past performance for fund selection'

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"Many SIP investors select funds on the basis of their recent performances, particularly returns generated during the past 1-year or 2-year period. However, such outperformance can be temporary due to various market-related factors. Moreover, funds having an excellent track record in the past can underperform their benchmark indices and peer funds in the short term owing to the fund management style or prevalent market conditions. Hence, you should choose funds for SIPs after comparing their past performances with peer funds and benchmark indices for the past 5-year, and preferably for the past 10-year periods. Doing so will provide you a better idea about how the funds have performed over the entire economic cycle," Sahil Arora added.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)

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