During times of crisis, some of the most\ncommon mistakes a beginner investor could make are<\/p>\n\n\n\n
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- panic-selling\nequity mutual funds that\nappear to be underperforming<\/li>\n\n\n\n
- availing of instant redemptions by selling\noff other investments.<\/li>\n<\/ul>\n\n\n\n
You might see your equity funds\nunderperforming and want to sell\/shift these mutual funds to other \u2018safer\u2019 asset classes such\nas government bonds.\nThe reason is simply that market lows can cause feelings of fear and this\nemotion may drive you to act on impulse and sell your holdings. The reality is\nthat markets go through temporary phases of highs and lows. <\/p>\n\n\n\n
A market is unlikely to stay in a period of\nunderperformance for more than a few months at a time. If a market is currently\nunderperforming for whatever reason, it will eventually start to do better once\nthe economic conditions improve. If you choose to weather the current market\nconditions with the help of rupee cost averaging, you can actually obtain more\nequity holdings via a SIP\nfor a lower cost. Once the market conditions improve, these holdings usually\nbecome a lot more profitable, as their value increases.<\/p>\n\n\n\n
Additional Read:<\/strong> Why are SIPs an Ideal Choice for the First-time Investor?<\/a><\/p>\n\n\n\n
Not\npaying off pending loans<\/strong><\/h2>\n\n\n\n
Loans are quite deceptive as their hidden\ncost can turn out to be a major financial drain. During an economic crisis, you\nmay want to pay in small instalments as you feel that is more convenient. In\ncertain cases, this is actually much more expensive as each year you carry\nforward your loan, a relatively severe interest rate is applied. The longer you\nchoose to avoid paying off your loan in full, the greater the rate of interest\napplied to it, and the costlier your loan becomes.<\/p>\n\n\n\n
It may actually prove wiser during an\neconomic crisis to pay off any pending loans while you have the funds to. This\npending debt is no longer a financial stressor once you pay it off.\nAdditionally, there is no risk of the interest on the loans taken growing\nsignificantly once the financial year ends. By not paying off pending loans,\nyou are only adding to any financial obligations you have. Over time, this\nusually proves to be incredibly costly.<\/p>\n\n\n\n
Going\noverboard with stocks<\/strong><\/h2>\n\n\n\n
![\"Financial](\"\/wp-content\/uploads\/2020\/09\/financial-mistakes-to-avoid-2.jpg\")
<\/figure>\n\n\n\nOn the opposite end of the spectrum, there\nare investors who believe that times of crisis mean jumping into equities.\nWhile it is considered wise to hold on to equity investments during a crisis,\nit is important to buy any mutual fund investment in a careful and measured\nway; not haphazardly. Since overbuying is driven by fear, albeit of missing\nout, this is also a kind of impulse purchase like the one mentioned earlier. <\/p>\n\n\n\n
For example, someone who takes a huge risk\nby investing all their savings into a small-cap equity mutual fund with the\ngoal of making massive profits eventually is taking an unnecessarily huge risk.\nNot only is a small-cap equity mutual fund a high-risk fund, but it also poses a magnified risk\nduring an economic crisis owing to market conditions. As mentioned before, the\npendulum need not swing in the polar opposite direction as that can be costly\nin its own way. In short, overbuying and overselling equities are both\nfinancial pitfalls one may be tempted by during a time of market crisis. Both\nshould be avoided. <\/p>\n\n\n\n
Additional Read:<\/strong> Investing in different asset classes based on their risk<\/a><\/p>\n\n\n\n
Not\nbudgeting your expenses<\/strong><\/h2>\n\n\n\n
This is a common assumption people have\nduring a crisis, wherein they feel they have not saved for an economic downturn\nso there is no point starting now. The truth is that it is never too late to\nstart saving. An emergency corpus is always useful to have. Set aside 30% of\nyour monthly income and budget aggressively, as this will help in managing your\nfinances during an economic crisis. <\/p>\n\n\n\n
Deliberately setting aside funds will also\nhelp in a proper reflection of your current financial scenario. The careful\nanalysis of one\u2019s finances is especially important during an economic crisis.\nYou will be forced to assess your income streams, cut out unnecessary expenses,\nand evaluate whether the amount you choose to spend on certain necessities and\nluxuries is apt. <\/p>\n\n\n\n
Conclusion<\/strong> <\/h2>\n\n\n\n
Want to diversify your portfolio? Try the Moneyfy app by Tata Capital. Through the convenience of your smartphone, you can now start SIPs<\/a>, invest in equity mutual funds, governmental bonds, liquid funds, insta redemption funds and more from the same platform. Assess your investment horizon, analyze your portfolio, instantly redeem funds, and compare the returns from different funds with the help of the Moneyfy App by Tata Capital. Mutual fund<\/a> investments were never simpler. <\/p>\n\n\n\n