MISTAKES TO AVOID WHILE INVESTING IN SIPs

 

WHAT IS SYSTEMATIC INVESTMENT PLAN (SIP)?

A Systematic Investment Plan or SIP is an ideal and easy way to invest in mutual funds. SIP permits investors to invest at regular intervals with a predetermined amount. A SIP is considered as a planned process which ultimately helps in elevating investors’ habit to save and thus generate a mechanism to save sufficient wealth for the future.

An investor can invest in a SIP on a quarterly, monthly or weekly basis based on their preferences. SIP in mutual fund scheme can be started by investors with as minimum as Rs.500 per month.

 

 MISTAKES TO AVOID

Choosing an inadequate SIP amount

One should know the exact amount that should be invested in a mutual fund via SIP since the right amount invested is the key to accomplish your financial goals. Usually, it is the tendency of people to begin investing in a SIP with a small amount, maybe because of the low-risk level or they do not have a huge amount of money to invest or any other reason. Once invested with a small amount, investors should increase the level of their investments with time. Moreover, there can be some investors who begin investing with a huge amount of money but do not go through the sufficient analysis of the fund which can incur them huge losses as well if they are not aware of the funds thoroughly.

Henceforth, while starting to invest through SIPs, you should know the right amount for you that has to be invested and that amount which you can monitor. Also, along with the right amount, you should take a check on your portfolio constantly to take decisions regarding the size of investments, whether to increase, decrease or stop your investments altogether. You can take these decisions only when you monitor your portfolio and have invested the right amount.

Investing for short-term

Mutual fund investments tend to generate results in a longer duration and are thus called long termed investments. Investors generally commit this mistake of withdrawing their investments in a shorter period by the fear of risk or when their portfolios are unable to generate the profits. Also, investors invest in SIPs with the sole purpose of making money instantly in a shorter duration. When you invest in mutual funds for a short period, you tend to face high risk and market volatility, in such situations, it becomes difficult to procure high profits. SIP generates higher returns in the long run since it works on the rupee cost averaging approach. Thus, investors should avoid investing in SIPs for a short period of time, thereby avoiding risk and volatility.

Choosing the Wrong fund

When you plan to start investing in SIPs, you should make sure that you choose the correct fund according to your financial objectives, risk tolerance level, and liquidity requirements. Since the wrong funds may not deliver you the returns you desire, you need to invest in the right fund to acquire and accomplish your needs an objectives. Moreover, to invest in the right fund, you should evaluate some major aspects such as fund’s past performance, underlying portfolio, expense ratio, fund manager qualifications, and experience, etc. These factors will assist you in selecting the correct fund and in realizing better returns perhaps.

Completely ignoring the SIPs after investing

Since it is true that SIP yields profits in the long run, peculiarly investors believe that long term investments do not require constant monitoring and thus stop keeping a check over their investments after investing in SIPs.

Nevertheless, every mutual fund should be monitored carefully by the investors even if they have been managed by the best fund manager. You should keep a check over your portfolio to evaluate according to your objectives. You should monitor the performance of the mutual fund every 6 months.

Waiting for the right time to invest

It is always recommended to not time the market. There is never the perfect time to enter a market when you wait for that time. However, the time you stay in the market is of importance. The longer you stay, the better the returns you acquire. Thus, do not focus on timing the market rather on time in the market.

Regardless, many investors try to find a suitable time to enter the market and start investing which results in a long waiting period. One advantage of investing in SIPs is that it averages out the costs of investing. Henceforth, there is actually no perfect time you can start investing in SIPs rather the earlier you start, the higher returns you will generate. This way, you can also reap benefits out of compounding.

 CONCLUSION

Mutual fund investing through SIPs is an ideal option to accomplish all your financial goals and objectives, however, you need to invest right. Investing in SIPs not only demands to select the right fund but also constant monitoring and focus.

You can achieve your goals when you learn to avoid the mistakes listed above. Investing in SIPs is for a long term, thus do not exit the fund in a shorter duration. You get better opportunities to generate higher returns when you stay in the market for a longer horizon.

Invest for long and Build Wealth!