5 Common Mistakes to Avoid While Investing in SIP’s
Since the past few years, people are increasingly showing their inclination towards mutual fund investments. However, just an attraction is not enough to invest correctly in the mutual funds. They also need to know how to invest effectively and moreover, what mistakes to avoid.
1. Investing for short-term
Mutual Fund investing is generally meant for generating wealth in the long run. One common mistake that majority of investors make is to redeem their investments in the short term in case their portfolios are unable to earn profits and they lose their compounding effect.
A lot of people start their SIPs with an objective to make money in a small time period. However, the fact is that when you opt for a small tenure, you are exposing yourself to a higher risk of market volatility. It is highly unlikely that you will get higher returns in a shorter tenure. Remember, SIP investing works on rupee cost averaging approach and helps in creating wealth in the long run.
2. Picking the Wrong fund
Before you start investing, you need to ensure that you have opted for the correct fund based on your financial aspirations, risk appetite, and liquidity requirements. Your investment objective should match with the category of the Mutual Fund. Remember there are more than 8000 Mutual Funds schemes to choose from. Consult with your Financial Consultant to identify the best fund for you. A Financial Advisor would suggest a Best Schemes with a parameters like historical performance, underlying portfolio, expense ratio, fund manager credentials etc. If you invest in the wrong fund, your SIP investments might not fetch the expected returns.
3. Abruptly stopping SIP investments
Mutual Fund is associated with long term investing and it would be highly profitable if you hold your units for a longer period of time. Many investors would tend to stop their funds when the markets are at the correction phase, It is understandable that people may start to panic seeing their portfolio in red. However, the risk of market fluctuations drives the majority of the investors to shy away from further investments and this is where they make a mistake. Never stop your SIP’s abruptly and complete your SIP tenure.
The best feature of investing in Mutual Funds through SIPs is that it averages out your costs of investing. And that’s why there isn’t any proper time for you to start your SIP. The earlier you can enter, the higher is your chance to build huge wealth and to enjoy the benefit of compounding.
4. Choosing an insignificant SIP amount
While investing in a Mutual Fund via SIP mode, you should know the right amount to invest in order to reach your goals/needs.
In general, most people start with a small amount for their SIPs. This may be because they do not have much money to invest at that time or any other reason. However, subsequently with time, one should not forget to increase the size of their investments. On the other hand, there are also a few investors who start investing in SIPs with big amounts without performing a proper analysis of the funds. Moreover, they also don’t monitor their investments and thereby later suffer losses.
While investing in mutual funds through SIPs, you need to find the right size to invest that you can maintain on a regular basis. Furthermore, you need to monitor your portfolio closely in order to make decisions regarding whether to increase, decrease or stop your investments in the underlying schemes.
5. Waiting for the perfect time to start
“Time in the market is better than timing the market.”
When it comes to timing the market vs time in the market, it is said time and again that don’t try to timing the market. You will never find the right time to enter. Here, time in the market is more important as the longer you stay in the market, the better will become your investment return.
Nonetheless, it has been seen that many investors keep waiting for the perfect time to start their SIPs.
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