A systematic Investment Plan, also known as SIP, is a mere tool that allows to invest in mutual funds. SIP investments help to turn small, insignificant amounts into huge ones. They are envisaged to produce higher returns through disciplined, regular investments over a period of time. It does not matter whatever the financial situation of the investor is. All they need to do is invest regularly, and they are bound to reap the benefits of SIPs. However, there are a few common mistakes that one should look out for while investing in mutual funds via SIP mode. These blunders can act as a barrier to reach their financial objectives. Assuming that you know what is a mutual fund, let’s understand these common SIP mistakes:
, also known as SIP, is a mere tool that allows to invest in mutual funds. SIP investments help to turn small, insignificant amounts into huge ones. They are envisaged to produce higher returns through disciplined, regular investments over a period of time. It does not matter whatever the financial situation of the investor is. All they need to do is invest regularly, and they are bound to reap the benefits of SIPs. However, there are a few common mistakes that one should look out for while investing in mutual funds via SIP mode. These blunders can act as a barrier to reach their financial objectives. Assuming that you know what is a mutual fund, let’s understand these common SIP mistakes:
1. Making rash decisions
Investors often discover themselves in a sticky situation when they get carried away by the advantages of SIP investments and decide to go big. They often invest a huge amount before analysing their current financial situation and capabilities. Unable to match these numbers in the future, they often have no choice but to stop their SIP investments. This practice is frowned upon by mutual fund experts.
2. Timing the financial markets
Market timing is an investment strategy wherein an investor’s buying and selling decisions are decided by predicting the future market movements. What’s more, it goes without saying that this is a skill not everyone can master. This is when SIP comes to recue. One of the benefits of SIP is that an investor does not have to time the market, thanks to a concept called rupee cost averaging.
3. Go long, or go home
When you invest for a longer duration, you reap more benefits and more significant returns thanks to the power of compounding, also referred to as the eighth wonder of the world by many. Compounding helps to provide extra earnings from your existing earnings, i.e. your returns are re-invested to fetch more returns. Additionally, long-term investments have a better chance at facing volatility than short-term investments thanks to rupee cost averaging.
4. No cushioning
A lot of investors decide to go all in and invest all their savings in the heat of the moment without taking into account their future financial situation. This might turn into a deadly mistake as one might end in a debt trap. It could be cause due to an emergency does that might occur to you or your loved ones. Hence, experts recommend investing only a fixed percentage of savings and preserve the rest for any future emergencies.
5. Not connection with financial goals
Numerous research and studies have proven that instead of starting off your SIP investments in an ad hoc manner, it is better to link them to clearly defined, measurable and specific goals. One’s financial goals short be SMART which is Specific, Measurable, Attainable, Relevant, and Time-bound. In fact, anecdotal studies have proven that SIPs that start with a random amount (such as Rs 4562) tend to continue for a longer period than SIPs with rounded-off figures (such as Rs 5000). This is because the former was most likely to begin after a due diligence and back-calculation to achieve one’s target amount. If you want to calculate the exact figure required to attain your investment goals, you can use a SIP calculator for the same.
All in all, it’s always better to link your mutual fund investments to your financial goals and not make any rash conclusions while investing. Try to invest for a longer duration and refrain from pausing or entirely stopping your investments. Happy investing!