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A Systematic Investment Plan (SIP) is touted as a safe way to start investing in Mutual Funds. It facilitates wealth creation without the necessity to time the market. However, it depends a lot on how you go about choosing the right SIP for your financial goals, and how you manage it. There are certain mistakes that people make while investing in a SIP. Although the reasons may vary, one of the most common ones is the lack of information.
So, here is a quick guide to the common mistakes you should avoid while investing through SIPs.
1. Wrong amount of investment: Most people begin with very small investments, in order to test the waters and see if there is truly any safety. This is fine for the beginning. However, after a while, it is advisable to increase the size of your investments in order to see any noticeable gains. On the other hand, there are people who invest big, right in the beginning. It's important to be sure of the fund’s performance record first. You also need to make sure that the size of the investment is such that you can maintain it on a regular basis.
Choosing the wrong fund: Before investing in a fund, people are advised to outline their financial goals and to determine how much of a risk they are willing to accept. This helps in deciding what type of fund will work well for your requirements. If you invest in the wrong fund, then the SIP may not give you the expected returns that align with your goals.
Not investing for the long-term: A lot of investors tend to withdraw their investment once the SIP looks like it has provided a decent gain. Investors may fail to realize that the value of their SIP also depends on the time period of investment. The real benefits of SIP can be enjoyed over a longer tenure. So, it makes sense to stay in it for the long haul. Investing for a longer period is the ideal way to invest in SIPs.
Not boosting your investment: Over time, it makes sense to increase the amount of your investment, as you earn more, or have lesser financial lows. In financially high periods such as when you receive an appraisal or bonus, you can use the extra money to boost your investment. If you have a lump sum, and you do have extra money tucked away for any financial emergency, then you can use this lump sum to boost your investment, alongside your monthly SIP.
If you are planning to start investing in SIP, I would suggest HDFC securities. As an investor myself for 8 years, I can assure you that they are the best out there.
Here’s the link to start with the SIP: https://www.hdfcsec.com/open-trading-ac