One of the biggest factors that differentiate successful and mediocre investors is their belief in the information that is floated towards them. While a mediocre investor who invests in mutual funds like UTI Mutual Fund, pays to heed to each and every word, a successful investor knows what to know, when to know and where to know from? This is the reason there are myths and misconceptions in the market which stay limited to successful investors and there are success mantras which successful investors chant.
Here we are with a list of secrets that only successful investors know:
8 Secrets to be a Successful Investor
Past returns are not reflective of the bright future
Relying only on the past future looking forward to a bright future is the biggest mistake you may commit as an investor. Yes, past returns must be tracked but should not be the only factor while making an investment decision.
There may be a chance that the fund manager went a little extra in risk-taking which rewarded later or maybe the industry boomed for some reason. Whatever the reasons maybe, if the catalyst is temporary, the returns cannot be permanent as well.
Try and look at more consistent factors. If you really want to bank on returns, look for the last five to seven years returns at least. Look out for the dividend payout policy and consistency of the company paying them.
Considering NAV highly
Firstly, NAV or Net Asset Value does not play a major role in the market pricing or performance of a mutual fund. NAV is more reflective of the number of units which may be allotted to you but does not impact the market pricing of a mutual fund, like HDFC Mutual fund.
It is not necessary that a fund with lower NAV will be a better investment avenue than the one with higher NAV. You must choose mutual funds based on other determining factors like Assets Under Management, last 5-year returns.
Reacting at every fluctuation is not right
Yes, we all skip a heartbeat when the portfolio reflects only the crimson shades but that is okay. As an investor, we must understand that markets work in cycles which will create some short-term deflections in the desired returns. Reacting to every curve in the progress graph is not right. That is the reason why financial advisers suggest not reviewing your portfolio more than twice in a year. It will only leave you distressed and compel you into making an impulsive decision.
Especially when you are invested into equity over a longer period, do not get affected by short-term variations which are part and parcel of being invested. Remember, the power of compounding is doing its work for you at the back-end.
Nobody can time the market, totally and correctly
Be it a successful investor or a novice, timing the market has become harder over the years. With the growing uncertainty and sky-high expectations if investors, markets have also found a way or other to surprise its stakeholders.
The idea is to stay invested and keep investing. Timings essentially refer to finding a slot in which you can buy cheap and sell high. But if you have done some homework or are an old player, you must be knowing that there is nothing like a high-time or a low time. Different industries experience highs and lows at different moments.
Investing through SIP is the only solution which allows you to push money into your portfolio and eventually into the market gradually. This cushions from the market volatility and gives you an added advantage of Rupee Cost Averaging.
Expense ratio is secondary
Expense ratio is a percentage of money that fund houses and fund managers charge from you are their maintenance fee. In an effort to avoid funds with high expense ratio, a lot of investors refrain from investing in certain mutual funds which also keeps them away from the fund with high returns. It is important that you realize that returns are a primary factor and expense ratio is secondary.
If you come across a fund which has been an excellent dividend master but has a slightly higher expense ratio as compared to other lower-performing funds in the same category, then you must go for the fund with higher returns irrespective of the expense ratio.
Keep pushing your investment limits
Most investors stick to the amount of money they have initially invested throughout their investment history which keeps them mediocre. Most successful investors do not forget to increase the amount of investment at every chance they get. It can be an increment or a bonus or an appreciation cheque, name it what you want but do not forget to take a portion out of it for investing further.
The concept of compounding is responsible for a great appreciation in your returns even with a slight increase in the investment amount.
Tax saving means ELSS
PF, PPF and bank certificates are not the only tax saving option in the market. In fact, gone are the days when people used to put all their Rs. 1.5 lac limit money in PPF account. ELSS is the new PPF; Equity-linked Savings Scheme is a mutual fund which is a dual benefit instrument which allows you to have tax benefit on your investments and provides with higher returns as compared to traditional tax savers.
Savings accounts are stagnant accounts
Keeping your money in a savings account is simply keeping it aside without any growth or development. Yes, liquidity is an advantage that savings accounts offer but what about returns?
There are a lot of options with mutual funds which provide with high liquidity and greater returns. You can always opt for SWP or STP with your investments and withdraw money as and when required.