Your clients will be aware of the power of SIP, compounding benefits, long-term investment returns and so on. Are they yet to see some gains in their portfolio? Or lost some during these times? Read on to know if they are making any of these mistakes:
- Investing in only one Fund house
Your client’s decision of investing in only one Fund house is out of convenience rather than for gains. Clients in order to avoid hassle and multiple documents, rather go for only one fund house and invest in their multiple schemes. This decision can greatly impact gains as clients often do not get to experience grow from other fund houses schemes which are equally managed by well qualified fund managers.
- Over diversification
This is the repeated reason of seeing losses in portfolio. Diversification is important, if done in limited capacity and based on client-risk profile. However, clients tend to over diversify their investments to generate higher returns. This makes the portfolio difficult to manage and dilutes the wealth creation ability of the portfolio. Check if your clients have over-diversified investments in their portfolio, this is a best time for re-balancing.
- Panic during market volatility
Clients often discontinue or stop their SIPs the moment there is volatility. Their focus shifts away from asset allocation and goal achievement to rather stopping any further losses. However, clients fail to understand that these little hiccups actually help them to gather more units in descending market and when the markets return they will receive their due rewards.
- Ignoring Tax Implications
Client often over look the tax implications associated with redemption of mutual funds. Post 2020 Budget, dividends are now taxed at hands of the recipient as per their income-tax slab rate. A well-thought through redemption plan is also important for clients if they wish to receive higher gains when redeeming their schemes.