Systematic Investment Plan (SIP) is a popular investment process where individuals invest a certain amount regularly in a certain period in mutual funds. SIP is a great way to make funds over the long term, but investors should avoid many mistakes to ensure optimal results. Before investing in SIP, make sure that you understand the investment purpose, risk profile and fund fee.
Inadequate research: Investing in SIP without proper research is one of the common mistakes. It is important to understand this, including the previous performance, fund manager’s track records, investment strategy and expenditure ratio. Investing blindly in SIP without doing research can give less returns.
Financial goals: Investing without clear financial goals can be unfavorable. Maintaining a specific goal will help you decide the amount required for investment and your SIP duration. It is important to know why you are investing. What is your financial goal? Are you saving for retirement, child education, or household advance payment? Keeping a clear financial goal will help you choose the right SIP and stay disciplined towards your investment.
Market Time: It is a mistake to try to determine the market time by opening or closing SIPs on the basis of short -term market move. The SIP is designed to average market instability over time. Evaluation of the market misses the opportunity and increases the chances of making emotional decisions.
Investment amount: The amount you invest in SIP depends on your financial goals and the ability to take risks. However, it is important to invest enough money to reach your goals. If you invest very little, it may take you longer to reach your goals or maybe you cannot reach them. On the other hand, if you invest too much, you may not be able to bear your monthly installments.
Diversification: Investment is important to reduce risk. However, excessive diversification may reduce the return as strong performing funds lose their impact. On the other hand, investing in only one fund may lead to unnecessary risk. Maintain a balanced approach towards diversification.
Reviews and not making adjustments: SIPs are for long-term investment, but it is important to review your portfolio from time to time and make adjustments if necessary. Your financial condition, market conditions and fund performance changes may require adjustment in your SIP allocation.
