Key mistakes to avoid while planning your financial journey

While planning your financial journey and building a corpus, it's important not only to focus on what to do but also to make sure what to avoid.

According to Kirtan Shah, Founder of Credence Wealth Advisors, there are five things investors should avoid in their investment journey — first, not to mix insurance and investment, second, avoid sectoral or thematic investing, third, always have the right allocation in place, fourth, avoid investing in instruments that you don't understand and fifth, understanding that fixed income is for capital protection and not for generating higher returns.

Shah said, "The prime reason why insurance policies are sold as investment instruments is because they tell you that maturity is going to be tax free and you get insurance which is an addon. However it is biggest mistake somebody would end up making in the investment journey to mix both of them together."

"While these insurance policies bundled with investments are sold to us, nobody in this space talks about the return that you will make on the product. They smartly bundle it saying that you invest a lakh today and you will get Rs 2.5 lakh after 20 years. So if somebody does basic math, he will understand that it is 4.5-5 percent. So there is no investment case because you are not making great returns. So do you actually even get insurance or not? The rule says that whatever premiums you are paying, 10 times of those premiums is what the sum assured has to be for the maturity to be tax free. So when you invest in these products, neither do you get higher returns nor do you actually get covered in terms of insurance because the insurance is too low," Shah added.

Shah believes retail investors miss out on the diversification aspect if they invest in thematic or sectoral funds and hence should avoid them.

"Thematic or sectoral funds can be a very good proposition for sophisticated investors who can time the market cycle really well. However, while you invest in a particular sector, what you are doing is defying the purpose of diversification," he said.

"So when you invest in a particular sector, you are putting a lot of concentration risk and typically the returns in these funds are very lumpy. So if you are not able to get out of these funds at the right time, then you probably might end up losing all the returns that you would have made over a period of time investing in that particular sector. So while sophisticated investors who can time the market and understand when to enter and exit can look at investing in thematic funds but for retail investors it is a strict avoid in my opinion."