TIP'S to Buy Stocks or MF

 

• Don't be in a hurry to sell off low performers

  Some funds are slow starters that even out their losses given enough time and attention. Patience truly is a virtue when dealing with mutual funds. Exercise it and hold on to your low performers for at least a year before you decide to get rid of them.

  A lot can change with the stock market or even your low performing fund in the span of a year. Experience shows that funds that are left to accumulate returns on for the longest periods of time are often the ones that offer the highest returns on investment for the investor.

• In a downturn, don't sell everything off

  Mutual funds, as mentioned earlier, are managed by professional stock market analysts and fund managers with years of experience in investing under their belts. In tough economic times, they take proactive measures to minimize the impact of the downturn on their portfolios, like switching sectors or specific stocks to minimize losses.

  Don't use your 'gut feel' over the training of these professionals as a justification for selling off your funds as the economy starts cooling off.

• Avoid putting your money into stock market bubbles

  Every few years, we see at least one sector that shows extraordinary promise and has investors making a beeline for such stocks. This tendency to favor sectors that are the 'flavor of the season' spills over into mutual fund trading too.

  Be very careful of such deep, sector-specific investments. They could well be the next dotcom bubble in the making. Check your call with a financial advisor, read up investing literature online or otherwise, speak to other experienced investors and then proceed with your sector specific picks

• Don't pick funds based on their short term performance

  Mutual funds must be evaluated based on not just their current returns but also on their long term – 1 to 5 year – returns. This is necessary to know if there has been a consistent pattern in the fund's performance over the years and also to ensure that short term market corrections don't negatively impact your choice of funds.

• Don't go too narrow with your mutual fund choice

  You may have done the most extensive research to arrive at the number one mutual fund option according to you. However, there are no guarantees in the world of stock and securities trading. There’s always a small risk of failure even with the best managed funds.

  Don't put all your investments in one basket. Pick your top three or four choices and spread your risks among them. Make sure they are different types of mutual funds to actually benefit from this move.

• Don't sell before your lock-in periods are over

  Selling a fund before the lock-in period runs out is a wasted opportunity to make some returns on your investment. There are exit loads attached to such premature exits and they often nullify the profits that you might have made had you stuck till the end of the lock in period.

  Another problem is short term capital gains tax that would become applicable on your investment, thus decreasing even further the ROI from the original investment.