The awareness of mutual funds has positively spread across the country and ample information is available online for investors to research on. There are a good number of blogs written by experts on how to manage one's mutual fund portfolio as well. Almost every mutual fund investment portal has a list of 'Top Funds' to invest in, that are either picked algorithmically or based on research.

But do all investors have sufficient understanding of how their investments need to be planned?

It is the general behavior of investors to make investments looking at past returns and investing in risky funds. Most such return based investment decisions can provide poor results.

A proper financial plan includes a thorough understanding of the investor's cash flows and financial goals. An effective risk profiling needs to be done to gauge the investor's comfort towards risk. Once risk profiling and asset allocations have been finalized, the final step involves selecting suitable Mutual Funds for your financial goals. In many cases, investors might not even have to invest in Mutual Funds.

Many investors think fund selection is the most important task. But the following questions are equally important, if not more.

  • What next after the fund selection?
  • How do I review and re-balance my portfolio?
  • What happens when my financial goals change with time?
  • What happens when markets crash or when markets provide negative returns over a sustained period?
  • What would I do if my Equity portfolio of Rs. 10,00,000 falls to Rs. 8,00,000 in few months? (This has happened 3 times in the past 3 years!)

If you have sufficient experience in the markets and have the discipline to plan/invest for your financial goals then you do not require an advisor! But hardly a handful of investors would fall under this category.

Here is a short list of mistakes that most novice investors tend to make. If any of these are applicable for you, then you should consider working with a certified advisor.

  • Investing in a list of Top Funds you have seen on a website or an app - based only on either Star ratings or Past performance.
  • Investing in a Mutual Fund since your close friend or relative recommended it.
  • Having more than 8 - 10 Mutual Funds in your portfolio.
  • Having more than 3 Mutual Funds from the same category (Large Cap/Mid Cap etc.)
  • Your portfolio is in continuous loss when benchmark indices such as Sensex, Nifty 50, Nifty 250 etc. are providing gains.

Planning and achieving your personal financial goals, especially during the long term, is a difficult task. There are only two ways to be able to do this!

  1. Put in the time and effort to study personal finance and understand the nuances of Financial Planning (or)
  2. Consult a professional advisor

Do think twice before investing if your source of information is a simple Google search. We are yet to see an investor who has become a crorepati or who leads a stress-free financial life thanks to few tips from his friends or family. Unplanned decisions could affect not just your financial life but that of your family's too!