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Systematic Investment Plan, in short SIP, is the simplest & convenient method of investing in mutual funds to grow wealth, especially when you have planned a long-term investment.
I understand in short, investing small but regularly in a disciplined way, is doing SIP in Mutual Funds!
In Mutual Fund Industry, times today, SIP in mutual funds has gained big popularity and investors prefer SIP more than any other method to invest. Experts say if you keep investing regularly in a disciplined manner, then you will eventually accumulate a sizable corpus in the long run!
Well, here the contradicting point is, despite being so convenient and simple a method, some investors fail to maximize their SIP returns as they make some basic investment mistakes.
Through this article, we are discussing some of the most important decisions that you shouldn’t be making while doing SIP in Mutual Funds!
Do Not Skip Your SIP Installment!
Although skipping a maximum of three SIP installments is allowed in mutual fund investment, instead, experts say, do not miss your SIP installment, as if you do, it may fail to get the desired result.
Let’s understand the adverse impact of skipping SIPs with an illustration.
Assume you invested Rs 10,000 through monthly SIPs in the NIFTY 50 from Jan 2006 to June 2021, a period of 15 years and 6 months. The principal investment amount in these 186 months stands at Rs 18.60 lakh (186 months * Rs.10,000).
And the investment’s total worth at the end of the tenure comes to Rs 53.6 lakh at an average annual rate of 11.9%. But if you would have missed 15 SIPs by skipping the SIP in December of every year, your total investments would have fallen to Rs. 49.4 lakh.
Therefore, here it is a must for you to understand that while you are planning your wealth creation through SIP in mutual funds, you need to be patient and consistent!
In case due to some kind of emergency you won't be able to pay your SIP installment for next month or some coming months, instead of skipping your SIP apply for, Pause SIP!
Not Increasing Your SIP Amount May Cost Your Wealth Creation!
People invest through SIP in mutual funds, but most of them do not increase their SIP amount at intervals when their income and surplus increase every year. This is a big mistake because when you progress in your career, you start to earn more. And with an increase in income your lifestyle also improves.
However, the improved lifestyle would be difficult to sustain if you only increase your expenses and ignore increasing your investments. To avoid such situations, you should increase your monthly SIP investment amount periodically. As your investment corpus grows, it helps you derive more significant benefits with the power of compounding and thereby reap higher returns. You can do it through Step-Up SIP!
Do Not Opt IDCW Plan, If Planning For Wealth Creation!
SIPs in mutual fund schemes help investors accumulate substantial amounts of wealth, in the long run, because of its significant feature, the magic of compounding. But you will not enjoy the power of compounding to the fullest if you do not reinvest the returns you earn from your mutual fund scheme. And this is the mistake that investors make when they opt for the IDCW plan (earlier known as Dividend Plan) of a mutual fund scheme.
A dividend Plan or IDCW Plan of a mutual fund scheme is an option where you keep receiving some returns from the mutual fund scheme intermittently. Consequently, the power of compounding diminishes, and you miss the opportunity to maximize your long-term returns.
So, when you start SIP in a mutual fund scheme, always pick the Growth Plan. In the Growth Plan, the mutual fund scheme does not give you anything through regular payouts. Instead, all the returns of the fund are reinvested, and therefore, your wealth compounds at a greater pace.
Do Not Invest In sips Without Specifying Your Goals!
There could be so many things that you would have planned to achieve in the future. While some goals could be short-term that you want to accomplish in the next few months, some goals may be long-term that you want to achieve in the next 10,20, or 30 years.
So, it would be a massive mistake if you simply start one or two SIPs without carefully considering the goals which you want to achieve in the future. Such an investment strategy is equivalent to taking a random bus without knowing your destination.
Thus, you must link your SIPs to clearly defined goals like retirement, child’s education, child’s wedding, foreign holiday, etc. This will help you to make some crucial investment decisions, such as which schemes you should invest in when you should redeem your investments, and so on.
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For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).