A Systematic Investment Plan (SIP) is a convenient and straightforward method to invest in mutual funds. It allows you to build long-term wealth by investing fixed amounts at regular intervals. However, some investors fail to make the most of their SIP investments due to basic mistakes.
These mistakes may bring down your SIP returns, and you may even fail to achieve your investment objective. Hence, it’s crucial to avoid them while making your SIP investments.
Here’s a look at five such mistakes that you should avoid at all costs while investing in mutual funds through SIP:
1. Trying to time the market
This is one of the crucial mistakes that many investors make. They try to time the market even while investing through the SIP method. As a result, they wait for the right time to start their SIP. However, this defeats the primary purpose of the SIP method, i.e., to invest through the market’s ups and downs.
Hence, it would be best to start your SIP as soon as possible. This not only allows you to start investing for your financial goals from an early age but also provides maximum time for your investments to grow.
2. Discontinuing SIPs during volatile markets
This is another common mistake that many investors make. They tend to discontinue their SIPs when the markets are shaky or volatile. However, they fail to realize that the SIP method is meant to protect their investments from falling or rising markets through rupee cost averaging. Further, discontinuing the ongoing SIP pauses your journey towards achieving your financial goals.
3. Setting unrealistic goals
SIP investments in mutual funds allow you to achieve your financial goals. However, it’s essential to set a realistic target while starting your SIP. Setting unrealistic expectations from your investments may derail your investment journey and can fill you with a sense of dissatisfaction.
It would be best to consider several factors while setting your SIP investment goals, such as your investment horizon, purpose, and risk appetite.
4. Starting with too high an amount
Though it’s prudent to save and invest as much as possible, starting a high-amount SIP is not recommended. The purpose of the SIP method is to invest in a disciplined manner for the long term. There’s no point in starting a high-amount SIP and discontinuing it due to the shortage of funds. You can create your SIP with a small amount and gradually increase it as your income increases.
5. Choosing the wrong scheme for your SIP
It’s essential to choose a suitable mutual fund scheme for your SIP. Selecting the wrong method may defeat the purpose of your investment. You must choose between equity, debt, and hybrid funds as per your risk appetite and investment objective. For example, if you’re a young investor looking to invest long-term, it’s better to start your SIP in an equity mutual fund.
Make sure to avoid the mistakes mentioned above to get the best out of your mutual fund SIPs. If you’re not sure of something or need guidance, you can take the help of a mutual fund advisor. You can also download the Tata Capital Moneyfy App on your smartphone to get market insights and seamlessly invest in mutual funds.