How to steer clear of common mistakes in mutual fund investments this Diwali

As the festive season approaches, investors see this as a time for new beginnings, prosperity, and renewed focus on financial planning and wealth creation. Many investors use this period to review or expand their mutual fund portfolios. Diwali, often seen as an auspicious time to start new investments, also becomes a period when investors may act impulsively by chasing returns, ignoring risks, or failing to review their existing holdings.

A mutual fund expert shares steps to follow to avoid mistakes that investors make while reviewing their portfolios during the festive season which includes revisiting and realigning your goals, checking the asset allocation, using the bonus wisely, planning ahead for festive investing, and not to mix emotions with investments.

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“Diwali is often seen as an auspicious time to start something new, including investments. But in that festive excitement, investors often make a few classic mistakes. Some reshuffle their portfolio impulsively just because markets are rallying. Others book profits too early to fund festive expenses, disrupting long-term goals. And many forget to review why they invested in the first place,” Chirag Muni, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds.

Post checking how the benchmark indices are performing during the volatile market, investors often get worried and redeem their money or discontinue their SIPs. In the current market scenario, if we look at Nifty50, the index has delivered a negative return of around 4.08% from September 26, 2024 to October 14, 2025.

According to the expert, SIPs are meant for disciplined investing, irrespective of whether the market is at a high or a low.

While sharing the inhouse research, Chirag Muni said that, “We studied 180 observations of Nifty 50 SIPs over the past two decades and found that even when the first-year SIP return was -20% or worse (which happened only about 8% of the time), the average return over the next four years was still 11.78% annually. This shows that poor short-term returns have almost always been followed by healthy gains, provided you stay invested.”

“Hence, stopping your long-term investments due to festive spending or market volatility is not a good idea. Instead, investors should plan ahead for festive expenses so that such spending does not affect their regular investments,” Chirag recommends.

Investors just chase returns after looking at stellar performance delivered by mutual funds and make investment decisions without aligning it with their risk appetite, investment horizon, and goals.

Many investors chase recently high-performing funds, especially sector or thematic funds, when returns look stellar but this “return-chasing” often leads to regret later so before investing, it’s important to consider your risk profile, financial goals, and investment horizon, Chirag said.

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The expert recommends that rather than betting on the latest outperformer, investors should prioritise diversified equity funds that spread investments across multiple sectors as this approach helps reduce concentration risk and limits the impact of underperformance in any single area, offering a safer and more balanced path to long-term growth

“Additionally, investors should diversify their overall equity portion across market caps with about 50–55% in large-cap funds, 20–25% in mid-cap funds, and the rest in small-cap. This balanced allocation helps capture growth opportunities while keeping overall portfolio volatility under control,” Chirag recommends.

One should always invest based on their risk appetite, investment horizon, and goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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