7 Mistakes to Avoid When Investing in SIP


In Indian markets, Mutual Funds have fortified their position as much sought after investment vehicles. In the dynamic investment options of today, many investors are increasingly looking forward to investing in various classes of Mutual Funds. Mutual Funds offer shared platforms for resource allocation and as such, offer numerous benefits. Mutual Funds work according to the jointly proffered ownership wherein many investors come together to pool their resources and use this capital to invest or trade in securities. The investment vehicles for Mutual Funds may be debt-based or equity-linked and offer segmented benefits as per the investor’s needs, requirements and risk appetite.

You may either opt for a lump sum investment in a Mutual Fund option or you may choose a Systematic Investment Plan (SIP). Usually investment through a SIP is one of the preferred options in Mutual Fund investment, with the overall investment getting divided into regular installments. 

This not only ensures that the overall investment is regularized and disciplined but also allows you to set up a planned way of investment so that your fund corpus accumulates regularly over a period of time. You can even start investing through a SIP with as little as Rs.1000 per month. When you start investing, simply set up a SIP with any sum you wish and that too, on any date of your preferred month. This will ensure a regular contribution towards your investment over a period of time in a Mutual Fund. This is where the taxation factor counts in. Moreover, taxation of equity funds or debt fund works in your favor through SIP. However, when it comes to SIP, many investors make certain mistakes that prove to be counterproductive to their overall gains in the long run. Therefore, it is essential to avoid making these mistakes as they can severely impact your future goals and your financial planning. Below mentioned are the seven mistakes that must be avoided when investing in SIP:  

1.    Less investment: 

Investing in a manner that gives a balanced perspective is the key. However, often it is seen that investors may invest a low amount in SIPs. What this essentially means is that even though a SIP is set up for contribution towards a Mutual Fund deposit scheme, yet the pay-out is quite less. It is very much important to understand that the net payable amount towards a SIP must match the requisite requirements and financial needs. If one starts with large amounts but goes on reducing the volume of investment over a period of time, the net impact is disastrous. Similarly, if one begins with small amounts, but does not increase the size of investments over a period of time, then again, the net accrued benefits get considerably impacted. The key is to follow the rule of balance i.e. increase the investments when one is in a position to invest more and to monitor the portfolio so that the payable amount towards a SIP matches one’s pocket. Less amounts of investment often hamper the chances of any credible growth.

2.    Opting for fund maturity on a short term basis: 

This is one of the most common mistakes that people commit in the case of a SIP. Basically, SIPs are meant for long-term financial gains wherein the investor enjoys the benefits of rupee cost averaging so that a significant return is created over a period of time. This is why regularity is such an important aspect of any SIP. Once the fund starts getting accumulated, one should not act in an impatient manner. Mutual Fund investments through SIPs work on the principle of long-term accumulation and as such, it is very much important to understand that even if a fund is not performing satisfactorily today, yet the returns will get accumulated over a long period of time. So, while choosing a SIP, tenure or the maturity time period of the fund must be chosen carefully with longer terms being more preferable.

3.    Incorrect choice of fund option: 

Mutual Funds offer varied fund options with each option having its relative benefits. Choosing a fund option that does not suit your specific needs and requirements is one of the major mistakes that can hamper the chances of your fund growth. The chosen option must be suitable for you and must match your financial goals and your risk appetite. Thus, before opting for the fund option, you must check the past performance, expense ratio, suitability of the portfolio managers etc. in detail.

4.    Holding or disrupting the SIP payments: 

Often it is seen that impatience gets the better of you, especially when a fund’s performance is not as per your expectations. Often the market conditions may lead to a short-term slowdown where a fund may not perform in an expected manner. During this time, many investors may act impatiently and may even stop the SIPs. This is where it is important to note that SIPs are long-term tools for fund growth and it is important to continue investing even when the market conditions are not so favourable. 

5.    Ignoring the SIP: 

In some cases, it is seen that investors start the SIP but then forget about the whole deal. They simply do not bother to monitor their portfolios and as a result, the SIP gets discontinued. It is very important that you must regularly keep a track of your investment channels and must remain informed about the status of your SIP.

6.    Acting too quickly:

Acting impulsively or based on hearsay is a big mistake when it comes to investments and SIP is no exception to this. If one acts in haste and takes decisions too quickly without judging the parameters accurately, the fund growth gets derailed within no time. So, it is important to take a decision after a proper analysis.

7.    Waiting for “correct” time: 

Conversely, waiting for too long or taking undue, delayed decisions is also a blunder. If one keeps on waiting for the “correct” time to start a SIP, when the market conditions are favourable, then it proves to be a waste of time. The key is to act in a balanced manner.

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