5 costly mutual fund mistakes to avoid during market corrections

The mutual fund industry is rapidly growing due to digital inclusion. On the other hand, equity markets are continuously correcting over the last few months due to intense FII selling, fear of Trump tariffs, weak market earnings etc. Due to these developments, retail investors are increasingly getting confused on how to steer clear of mistakes that might affect their returns.

As of 31st January 2025, the Indian mutual fund industry’s Assets Under Management (AUM) stood at ₹68.04 lakh crores. The equity mutual fund sector’s AUM was ₹29.46 lakh crores, with SIP inflows at ₹26,400 crore for January 2025. The industry has seen significant growth over the past decade, according to Association of Mutual Funds in India (AMFI) data.

Now, it has been witnessed that market corrections have resulted in redemptions in equity mutual funds and a drop in bullish sentiment. This natural reaction to a market correction however is not the best way to deal with prices going down in equity markets.

Market corrections hence have a tendency to highlight these mistakes, where mutual fund investors follow the herd and make mistakes such as booking profits when the panic peaks and unless corrected such mistakes can be expensive. Therefore, below are some important points to always keep in mind when you are looking for investing in equity mutual funds:

5 mutual fund mistakes you can’t afford to make

Chasing past performance

It is risky to choose mutual funds on the basis of past performance. Recent past performance cannot always be a determinant of future success because fund styles and market circumstances change. Instead, consider a fund’s record of consistency, long-term fund manager experience, and process of investment.

Overlooking expense ratios

Overlooking expense ratios can materialise in terms of returns over the long term. Consider expense ratios and make use of low-cost index funds or direct plans to minimise expenses.

Over-diversification or under-diversification

Over-diversification and under-diversification are both negative. Over-diversification watered down returns, while under-diversification is risky. Choose a diversified portfolio aligned with your risk tolerance, financial capacity and investment objectives.

Not matching investments with risk tolerance

Failing to establish your risk tolerance can lead to investing in too conservative or too risky funds. Get your investments aligned with your risk profile and financial goals.

Trying to time the market

It is impossible to predict when the market would move and hence timing markets is a myth, and in most cases, timing the market proves to be tricky. Alternatively, investments through a systematic investment plan (SIP) can be considered in order to save risk and obtain higher returns.

Therefore, by avoiding such blunders, Indian investors are able to elevate their rate of success within the mutual fund business and gain financial success for their long term growth.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.