Sanjay Kathuria said that investors should examine the costs and conditions of financial products before committing their money. The mindset should be to ask questions.
Investors should avoid blindly following stock tips, chasing unrealistic returns and buying financial products without understanding their terms, said Sanjay Kathuria, finance coach and creator, at the Smart Investor Arena of the Business Standard BFSI Insight Summit in Mumbai on Wednesday.
Highlighting common investment mistakes, he said investors often fall into traps by investing in penny stocks, expecting extraordinary returns within a short period and trading in futures and options (F&O) in the hope of doubling or tripling their money overnight.
“I have made almost every mistake that investors make,” he said during a conversation with Vedant Vichare titled ‘Quest for returns: how smart investors can avoid traps’.
Kathuria said investors must also know when to exit an investment rather than hold on in the hope of squeezing out the last bit of profit.
“Learn from mistakes and avoid relying on tips while making investment decisions,” he said.
Kathuria also flagged the risks of buying financial products based on recommendations from people who may have incentives to sell products that are not necessarily suitable for customers.
“Mis-selling is happening. RBI is doing its best to protect consumers. Investors must evaluate products before buying them. If a relationship manager calls you 3-4 times, don’t buy that product. It means that the product or plan is not suitable for you,” he said.
He added that consumers often scrutinise small everyday purchases more carefully than financial products involving commitments of thousands or lakhs of rupees.
“Investors should examine the costs and conditions of financial products before committing their money. The mindset should be to ask questions,” he said.
Kathuria also urged investors to set realistic return expectations instead of chasing extraordinary gains.
“If investors expect returns of 24 per cent, 30 per cent or 50 per cent every year, they may have a very short relationship with the markets,” he said.
The stock market, he added, should be viewed as a tool for building wealth over the long term rather than generating exceptional returns every year.
He stressed the importance of patience and discipline in mutual fund investing, noting that investors often track the net asset value (NAV) of their investments every day even when their financial goals are several years away.
“Long-term wealth creation requires investors to remain focused on their goals rather than react to every market movement,” he said.
Responding to a question on weak market returns and the attractiveness of fixed deposits (FDs), Kathuria shared his experience of continuing a ₹30,000 systematic investment plan (SIP) through the market downturn in March 2020.
“The experience reinforced the importance of staying invested through market cycles,” he said. He cautioned investors against looking for a single mutual fund that is best for everyone.
“Investors should identify products that match their financial goals, risk appetite and investment horizon. Smallcap funds are generally more suitable for investors with longer investment horizons and a higher tolerance for volatility, while FDs may suit shorter-term goals,” he said.
“Look for the right, and not the best,” he said.
Kathuria added that regular investing and diversification can help investors manage market risks, although neither guarantees returns.
He also urged financial content creators to focus on investor education rather than providing specific stock tips or trading calls.