Finance

Six SIP investment mistakes you must avoid

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Mutual funds have gained popularity with investors thanks to systematic investment plans or SIPs. These plans are a straightforward investment mode for building wealth over time. Systematic investment plans work only when you continue investing monthly in your mutual fund scheme. However, a few investors fail to maximise the SIP returns due to basic errors. Listed below are some SIP investment mistakes you must avoid:

  • Starting late:

One of the key advantages of a mutual fund investment is the power of compounding. Under compounding, the returns you earn on the principal investment amount are re-invested to earn higher returns. This process is cyclical until you redeem your investments. Starting your investment journey would help you take full advantage of the power of compounding.

  • Setting unrealistic goals:

You must also avoid setting an unrealistic goal that’s not monetisable in a reasonable time. For instance, you may aim at an early retirement. But before setting the goal of early retirement, consider factors like the target amount, retirement age, and post-retirement activities. Setting an achievable goal based on your income can help you meet your financial goals.

  • A short tenure:

A short investment tenure of 1-2 years attracts a higher risk of market volatility. Market movements impact mutual fund investments throughout the year, and a short investment tenure limits your chance of rupee cost averaging. A short-term investment horizon would mean lower returns. And even that relies on the current market conditions. The solution for this is to consider a long investment tenure to take advantage of the rupee cost-averaging benefit of SIP. A long investment horizon also gives you a chance to enjoy reasonable returns.

  • Not monitoring SIP:

The decision to invest in SIP is only the first step. After that, you must regularly monitor your systematic investment plan. Compare your SIP against your long-term goals and check if they align. Monitoring your SIP online can help you ascertain whether the mutual fund returns and risks match your choice. Also, observe your SIP for frequent policy and management changes and any regulatory lapses in the fund.

  • Choosing the wrong scheme:

Don’t forget to assess your risk appetite and choose the mutual fund variant that aligns with your goals. Avoid selecting a mutual fund scheme that may not fit your risk profile. Determine your risk appetite and time horizon and, only then, choose a suitable mutual fund scheme.

  • Cancelling during volatility:

If you are investing in equity funds through SIP, it is prudent to keep investing for a long time. This advice is applicable during market volatility. It is understandable when you redeem your investments during a bear run. However, it is also important to note that market performance is not constant. So, your investment timeframe must be flexible to accommodate market volatility. Keep investing in your mutual fund scheme through the ups and downs of the market.

Conclusion:

Investing in mutual funds online through SIP streamlines your financial life. You don’t need to worry about investments because your bank account is debited automatically.

To learn more about SIP in mutual fund visit https://mf.nipponindiaim.com/knowledge-center/all-about-sip.

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