Common mistakes in SIP investments

Rajat has been investing in Mutual funds for the past three years through SIP but the returns he got were not good.
He doesn’t know where he is going wrong. Like Rajat, many investors invest through SIPs, but make many mistakes that prevent them from getting the right returns or achieving their goals.

Let’s understand what are the common mistakes in mutual funds that all investors should avoid.

1. Starting SIP late
The earlier you start SIP, the more time your money has to grow. This is because of the power of compounding, which means that your earnings are reinvested and earn interest on interest. As a result, your investment grows at a faster rate over time.

2. Hesitant to invest in equity:
Equity mutual funds are generally considered to be riskier than debt mutual funds, but they also have the potential to generate higher returns. If you are investing for the long term, you should be prepared to take some risk in order to achieve your financial goals.

However, if you diversify your equity funds, you can continue to grow your wealth while maintaining a high level of safety in the long term.

3. Choose dividend instead of growth plan:
If you want to receive a regular amount every three months or six months, then you should choose the dividend plan. However, if you are aiming to build a good fund for the long term, then the growth plan is better.

4. Stopping SIP
If you are investing in an SIP, it can be difficult to achieve your goal if you stop it in the middle. So, no matter how difficult the financial situation is, try not to stop the SIP in any situation.

5. Being influenced by the name of the AMC:
This is a mistake that many investors make. They are influenced by the name of the mutual fund. Especially if an AMC is associated with a foreign company, the influence is even more. Before investing in any scheme, consider all aspects such as the scheme’s past returns, risk, and the reputation of the fund manager.

6. Not reviewing SIP:
Keep track of the progress of your SIPs according to your long-term goals and ensure that they are in line with your goals. Also keep an eye on whether there are any regulatory changes related to the fund in the case of SIP investments, such as frequent changes in management and frequent changes in policies. If the fund’s performance is not up to your expectations, you can exit it.

7. Not following the time horizon:
Often people try to exit after evaluating their SIP performance in just two or three years. This does not give a true picture. If the fund’s performance is good, the time horizon for SIP investment should be 10 to 12 years.
The benefit of this is that your SIP investment can withstand all kinds of market cycles in such a long period of time and increase your wealth.

8. Not having any specific target or objective for SIP:
Your SIP should have a specific goal or objective, such as retirement, children’s higher education, marriage, or studying abroad. Only then will you be able to accurately estimate what your investment horizon should be.

Madhuban Finvest founder Deepak Gagrani says that you should not start SIP just like that. Create a clear plan that defines the role of every investment in your portfolio. Use top-up as your income increases. Only SIP investment done with a good plan can help you achieve your financial goals.

SIP means to seize the time by maintaining an investment for the long term. The lesson for investors like Rajat is to not try to predict the stock market and let your investment run passively. You can only take advantage of SIP if you maintain your investment in a disciplined manner.