12 Common Mistakes made by SIP Investors

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Investment in mutual funds through SIP is quickly gaining favour with investors, particularly among young people just starting their careers. The mutual fund SIP’s ability to grow a significant maturity amount with only a little monthly commitment over time is the reason for its increasing popularity. An investor may occasionally make blunders that prevent him or her from achieving significant gains, though, due to a lack of product understanding.

One of the easiest and most practical methods to build money over the long term is through a structured investment plan, or SIP. It is predicated on the idea that if you continue investing consistently and systematically over time, you will eventually amass a sizeable corpus. That’s how easy it is. However, some individuals fall short of maximising their SIP profits because to certain simple investing errors.

1. Skipping SIP

SIP is a good practise that you should keep up with discipline to stay in shape. However, a lot of investors make the error of skipping SIPs, which causes them to fall short of their objectives. Assume that from January 2006 to June 2021, a period of 15 years and 6 months, you invested Rs 10,000 through monthly SIPs in the NIFTY 50. (186 months * Rs. 10,000) The total principle invested during these 186 months is Rs 18.60 lakh. At an average yearly rate of 11.9 percent, the investment’s total value at the conclusion of the term is Rs 53.6 lakh. However, if you had skipped the SIP in December each year, you would have missed 15 SIPs, bringing your total investments down to Rs. 49.4 lakh.

2. Starting too late on your SIP

The appeal of a SIP is that the sooner you begin the better. The sooner you start, the greater the returns your principle gets, and the greater the returns your returns earn. This is known as the power of compounding, to put it simply. Over a longer time frame, the time truly works in your favour. With a reduced contribution, you not only build the most wealth possible, but you also get a very high wealth ratio. Do not make the error of starting your SIP late.

3. Waiting for the Ideal Moment to begin Investing

I recently spoke with several acquaintances to whom I had previously introduced mutual fund investment a year ago. Knowing that he hasn’t started investing surprised me. He had been waiting for the ideal moment to invest, so he was still unable to start investing.

I have to inform you that timing the market is a terrible idea when it comes to investing. Only when you want to trade rather than invest is market timing relevant. Over an extended period of time, the market experiences several ups and downs to go from point A to point B.

4. Lacking Self-Control

Failure to maintain discipline is among SIPs’ most serious errors. Your SIP must be continued after you begin it. Your SIP’s success depends on maintaining that discipline. You won’t have enough money to achieve your goals if you start a SIP and stop it in the middle. Make sure your SIP is a required discipline even if you are on a tight budget and that you will never break it.

5. Keeping the SIP Investment Amount the same

Even while many investors use SIPs to make investments, relatively few of them think about raising their contribution even when their income and excess rise year after year. This is a serious error since as your profession develops, your income increases. Additionally, your lifestyle improves as your money rises.

If you merely raise your costs without also raising your assets, it would be tough to maintain the increased lifestyle. You should occasionally increase the amount of your monthly SIP contribution to avoid such circumstances. Higher returns are possible when your investment corpus expands since it enables you to use the power of compounding to get more substantial advantages.

6. Setting Unrealistic Expectations

Setting an impossible aim that cannot be monetized within a reasonable time frame is a typical error that most investors make. For instance, you could desire to retire sooner than later. However, there are a number of things to take into account, including deciding on the retirement age, the desired sum, and your post-retirement plans. Your SIP can achieve the aim depending on the income levels to support the plan by setting an attainable and reasonable goal.

7. Not routinely checking SIPs

Your investment journey doesn’t end when you start a SIP. The world is not over. As a result, you must continually check to determine if your SIP investments and long-term goals are aligned. You must assess your SIPs in various schemes once a year in order to reach your goals. You may use the review to determine which mutual fund schemes have performed up to expectations and which have fallen short. Consider quitting a programme if it has underperformed for 18 to 24 months.

Monitoring SIPs also gives you the opportunity to adjust your portfolio if your asset allocation significantly changes.

8. Keeping to a Brief Timeline

People like reviewing their SIP’s performance over a two to three year period. That might paint a false picture, most certainly. Around the very least, try to maintain the time period at 10–12 years. At that point, your SIP can balance out market cycles and boost your wealth. In actuality, long-term fames of 20–25 years are where SIPs perform best. Always maintain discipline.

9. Not enough Diversification in your Mutual Fund Portfolio

An investor believes diversity is accomplished when they make too many investments in one specific sort of programme. You should be aware that every Mutual Fund plan functions as its own portfolio of diverse securities. Consequently, investing in several similar schemes just causes portfolio overlap at a greater expense ratio. Instead of choosing it, investing as much as possible in 2 or 3 schemes would let you get the benefits of diversity.

10. Lack of a Fund for Emergencies

Many investors put all of their available funds into mutual funds at once. Therefore, it should go without saying that they lack the funds necessary to cover situations like medical costs. They are then forced to redeem their units in order to cover these costs, which results in their having to pay exit load. A mutual fund provider may impose an exit load as one sort of fee if you redeem any units within a predetermined time frame following the date of investment.

11. Ignoring Asset Allocation

The amount invested in various assets is known as asset allocation. Your financial objectives, the number of years until they are due, and your risk tolerance are the main factors that determine how your assets are allocated. Your hard-earned money is at danger if you don’t diversify enough among asset types, such as fixed income, stock, gold, and real estate, among others.

12. SIP cancellation amid a volatile market

When a target amount and a long-term schedule are established, investing in equities funds performs well. However, cancelling the SIP during market downturns may harm your investments. Keep your investment timeline flexible to account for market volatility, and maintain patience through market ups and downs.