Most of the mistakes beginners make have nothing to do with choosing the wrong fund. It’s simpler. And dumber than that
You downloaded an investment app, maybe after watching someone’s Instagram story about “money working for you while you sleep”. Or, after a stressful month when you ran out of funds by the 19th. Or maybe, watching too many finance reels where a 24-year-old guy in a hoodie told you SIPs can solve every financial problem.
So, you decided to start an SIP. Till this part, you’re all good.
Now, what did you miss out? In all that emotional rush of feeling financially responsible, no one told you that the first year of investing is the phase when most beginners end up feeling disappointed.
Why? It’s not because mutual funds did not work for you, but there was a gap between what the internet sold to you and how investing works in real life. The difference is far and wide.
This pattern is pretty common. We’ve seen beginners making the same five mistakes over and over. Let’s get a bit deeper.
Mistake 1: You picked the fund based on past returns
Obviously, this is the most natural thing to do. Just when you opened the app, you sorted the funds based on “highest returns”. Suddenly, you came across a fund that hit 45% last year. Yep! That’s my pick!
The problem lies in the fact that from past returns, you can know what has already happened. Do the returns tell you what’s about to happen in the next couple of years? No. Literally nothing!
By the time you start your SIPs, that trend may already have faded. Now, you’re invested in a fund suitable for a market that’s already over and you keep wondering why your portfolio looks red.
So, what do you think really matters? It’s consistency. Find out how the fund performed across 3 years, 5 years, or 7 years. How did it react during a crash? What’s the track record of the manager?
These questions are boring. But sometimes, dealing with boring things pays off!
Mistake 2: You started a SIP and then… stared at it. Daily.
We get it. You set up your first SIP with INR 500, or maybe INR 1000. In a week, your investment app became your most-opened app. You find yourself checking your portfolio at lunch, before bed, and even on the toilet.
Then one Friday, the market crashes 2%. Your portfolio turns red, and you gulp.
SIPs must be ignored on a daily basis. Let the market go wherever it goes in the short term. You just need to invest a fixed amount regularly. Market ups and downs average out over time. This is called rupee cost averaging.
When markets fall, your SIP buys more units. When they rise, the existing units you hold gain value. Just be patient and see the magic. Your portfolio won’t grow faster if you check it every day. You’ll just get more anxious.
Mistake 3: You panicked and stopped the SIP after a dip
This mistake is so common that it hurts almost every new investor. The market corrects after you invest INR 10K, and it shrinks to INR 9.2K.
“I’m losing money. This clearly isn't working.” You just pause your SIP. Or worse, you give in to panic and redeem the remaining units.
Look, you must understand that an SIP in an equity mutual fund is not a fixed deposit. It will go down, sometimes for prolonged periods, like months. That’s how equity works.
The entire return will be shaped over 5-10 years, and that’s possible only when you stay invested throughout the downturns. Successful investors simply don’t stop their SIPs.
Mistake 4: You over-diversified right from the start
“Don't put all your eggs in one basket.” That’s something you might have read in a blog or heard someone telling you. It’s a great piece of advice.
However, we have seen a lot of new investors start 6 SIPs across 6 different fund categories - large cap, mid cap, small cap, flexi cap, sectoral, and international. They think they’ve diversified.
But if you have a closer look, you’ll see half of those funds hold the same 15 stocks at the top. It’s an illusion of diversifying your portfolio. You haven’t spread out the risk. You just made your portfolio difficult to track.
Choose two well-known funds for the first year. A large and mid-cap, and a simple flexi-cap can get most of the ground covered.
Mistake 5: You confused investing with trading
You see people posting screenshots of 45% gains in a month and saying “mutual funds are too slow”. Suddenly, you feel the urge to do something active.
The hard reality is that those screenshots are survivorship bias in action. Every person posting a win has a corresponding fifty people who lost money. They posted nothing.
Trading is a skill. It takes years to develop that. On the contrary, mutual funds were invented for people who didn’t find trading safe. People who have jobs, lives, and other things to do.
There’s no shame in starting slow. The magic of compounding takes time. You put in the money. Let time do the rest.
So, what should year one actually look like? Honestly? Boring.
What you need is three to four well-diversified funds. Also, make sure you have an emergency fund safely saved aside in a savings account or a liquid fund. This means you do not have to redeem your equity investments if a sudden need for money arises.
Cultivate the discipline not to check your portfolio more than once a month. Start boring. Stay boring. Let boredom make you wealthy.
