A SIP or Systematic Investment Plan offers investors a chance to start early and build a huge corpus for use at a later stage. One of the best ways to create wealth over the long run, SIP mutual fund schemes in India allow even people with lesser funds to participate in the equity markets. While such schemes are highly beneficial, investors make some common mistakes in choosing the right mutual fund or managing their investment.
Common Mistakes to Avoid
Here are some mistakes made by many people that you should consider avoiding when investing in a SIP:
- Choosing the Wrong Amount: Investments in SIP can be fruitful only when the investors choose the right amount. While a SIP allows one to start with a small amount, it is always better to increase the same with the increase in their salary so that they can build a huge corpus and reap its benefits. Similarly, starting a SIP with a big amount without considering that they will be able to maintain or increase it, in the long run, is not a wise decision. Investors also need to monitor your portfolio closely to decide about changing their contribution to a SIP from time to time.
- Redeeming Investments in the Short Term: A common mistake made by investors is to redeem their SIP investments after some time if the underlying portfolio does not generate the desired returns. Investors need to remember that SIP investing works on the rupee cost averaging approach and thus generates good returns over the long run.
- Choosing the Wrong Fund: SIP investments and their duration should be decided by investors’ financial goals and risk appetite. The use of a SIP investment calculator is recommended to find out the returns that an investor can expect from his investment and compare different plans on this aspect.
- Stopping SIP Investments: Mutual fund investments via the SIP route tend to generate good returns over the long run. However, some investors become impatient and stop contributing to their SIP because of losses or low returns in the short run.
- Starting Too Late: The earlier you start investing in a SIP, the better returns you earn because of the compounding effect. An early start means that the returns on your principal amount generate further returns but when you start late, your corpus is less and so are the returns earned on it.
- Choosing Dividend Plans Over Growth Plans: Many investors tend to choose dividend plans and use up the dividend received in their day-day to expense. What is advisable is to go for growth plans wherein your dividends are automatically reinvested thereby generating higher returns.
- Investing in Sector and Thematic Funds: Investment in cyclical funds like sector and thematic funds enhances your risk exposure. So, it is always advisable to go for diversified equity funds that invest in not one but several segments.
- Not Monitoring Your SIP Investments: Since the basic purpose for investing in a SIP is to meet your long-term goals, you should monitor its performance from time to time. This will help you decide whether the SIP is yielding results in line with your goals or not. You should also keep track of changes in the management of your SIP, its policy, and regulatory lapses if any.