People often end up making sub-optimal investment decisions which derail the pace of financial journey.
Investing plays a major role in achieving financial security and boosts future planning to be independent in life. When it comes to making investment decisions, people are often influenced by their own emotions and by the views of those around them. Due to this, people often end up making sub-optimal investment decisions which derail the pace of the financial journey. However, many of the common investment mistakes that people make can easily be avoided.
To understand the situations that lead to these errors, Ms. Radhika Gupta, MD & CEO of Edelweiss Asset Management Limited (EAML) explains the 10 most common investment mistakes and the ways to consciously avoid them. Ms Gupta has set up the country’s first domestic hedge fund and is India’s only female head of a major asset manager.
According to Ms Radhika Gupta, one must avoid these 10 investment mistakes to boost and improve the investment journey
1. Too much love: Biases stem from experiences. This means that if one has a suitable experience with a particular fund, then one ends up investing in various schemes offered by the same fund house. However, this is not optimal for investing as every fund house has certain skills. One must recognise these skills and choose the funds accordingly.
2. One for all: Different asset classes have unique skills and one must not apply similar metrics to judge all of them. Something that matters to equity funds may not be important to debt funds. For example, the individual stock holdings in arbitrage funds are not relevant because these funds are fully hedged. However, in equity funds, they are very important.
3. Perils of passive: Ms Gupta explains that passive funds are a low-cost way to generate index-linked returns. However, not all passive funds are suitable as some track bad indices or others have a large tracking error. Due to this, it underperforms the benchmarks. Passive investing requires research just like other forms of investing.
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