As an investor looking to build wealth over time through systematic investment plans (SIPs), avoiding costly mistakes is critical to achieving your financial goals. An SIP is a popular investment method in which you can regularly contribute a fixed amount of money into mutual funds regularly.
While SIP plans offer a simple and disciplined approach to investing for the long term, you need to be prudent to maximise gains.
8 important things to avoid any SIP mistake
To maximise the gains from your SIP investments, there are certain mistakes you must avoid:
Starting too late
The earlier you start investing, the more time your money has to grow. Start an SIP investment plan as early as possible to benefit from the power of compounding. Even small investments of Rs 500 to Rs 1,000 per month starting in your 20s can accumulate some good wealth over 30-40 years.
Investing without any objective
Have a clear investment objective before starting an systematic investment plan IP, whether buying a house, children’s education or retirement. Choose SIP investments that align with your goals. Review and rebalance your portfolio periodically to keep it on track.
Lack of diversification
Diversify across asset classes like equity, debt and gold as well as within the same class. Choose 2-3 high-quality funds from different fund categories and fund houses to diversify your portfolio.
Unrealistic expectations
Do not expect unusually high returns from SIPs, especially in the short term. SIP returns tend to average out over longer periods. Do not exit or stop SIPs during market downturns. Stay disciplined and patient.
Reacting in panic
Do not stop or withdraw from SIPs in panic when markets decline sharply. This negates the benefits of rupee cost averaging. Stay invested and continue SIPs to buy more units at lower prices. Over time, markets will recover, and your portfolio value will increase. Stay calm and remain invested.
Neglecting to review and rebalance
You often forget to review your portfolios regularly. Market conditions change, and so do individual investment goals. Regularly reviewing and rebalancing the portfolio ensures it remains aligned with your financial objectives and risk tolerance.
Not increasing SIP periodically
As your income increases over time, increase your SIP amount to gain more from the power of compounding. A good rule of thumb is to increase your SIP amount by at least 10% each year to offset inflation. Review your SIP amount at least once a year and use an SIP Calculator to keep up with your financial goals.
Imitating others blindly
Every investor has a different financial situation, risk appetite, and investment goals. Do not choose a fund or start an SIP investment plan just because someone else is investing in it. Evaluate how an SIP fund suits your own needs and investment objectives. Seek advice from a financial advisor if required to make an informed choice.
To wrap up
By being aware of the common pitfalls, you can steer clear of decisions that may negatively impact your investment growth. With amazing planning and discipline, SIPs can be a powerful tool to build wealth over time. Make the right choices today to secure your financial future tomorrow.
