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SIP, or Systematic Investment Plan, is simply the most popular method to invest in Mutual funds. Investors mostly prefer the SIP method to invest in mutual funds whether for long-term or short-term.

If we talk about the reason behind the SIP popularity, then there are many reasons considered by investors, some have a strong perception that SIP is the only method to invest in mutual funds, while some investors consider it as the safest way to invest in Mutual funds. Well, both may not be true always!

If we talk about the exact reason then, the disciplined systematic investment and rupee cost averaging, these two benefits are majorly responsible for the popularity of SIP.

Mutual funds allow several types of investment options that include different types of asset classes, tax benefits, varying in terms of return aspects and risk thereto. In terms of investment style, they allow you to invest in a lump sum or through a systematic investment plan (SIP).

SIPs in mutual funds help investors create wealth gradually in the long-term but they should not be the de facto investment option for every mutual fund investment, and there are situations when investing through SIPs may prove counterproductive.

Let us see when an investor must not invest via sips in mutual funds! 

When You Are About To Reach Your Financial Goals............

One of the key purposes of investing via SIPs is to mitigate the volatility risk prevalent in the short term. SIPs are meant for long-term investment so that the volatility in the short-term market is well taken care of.

When your long-term investment grows and gets closer to achieving your target financial goals, it’s crucial to cut down the risk and shift the corpus to fewer volatile instruments to protect it from losses. At this point, continuing to invest through SIPs may not be a good idea.

Even if the market is in an upswing, it is best to resist temptation and divert your investments to a low-risk product. Protecting the corpus should be your prime focus as you get closer to your financial goals.

When You Have A Big Amount To Invest..............

SIPs work well when you are investing a portion of your regular monthly income. However, if you have got a big lump sum amount in hand, it’s not a good idea to invest small amounts every month via SIP and keep the large chunk in hand.

For example, if you have Rs 10 lakh in hand and you plan to invest Rs 5000 every month in an equity fund through SIP, you will lose out on earning a return on a huge portion of your corpus.

Instead, if you plan to deploy the entire fund in a staggered manner, i.e., Rs 50,000/month for 20 months, it can give you a better outcome. Another way is to deploy the entire corpus in a low-risk mutual fund investment product to earn a decent return and gradually shift the money to another fund that has the potential to offer a higher return in the long run.

When The Selected Mutual Fund Scheme Is Not Doing Well...........

When you invest in mutual funds, it’s crucial to track the performance of your portfolio. Sometimes, some schemes in your portfolio may fail to perform as per your anticipation.

If you continue to invest in a loss-making mutual fund that also doesn’t have the potential to recover, then you may make greater losses than you would have already incurred. The best way to avoid further losses and revive your portfolio is to stop the loss-making SIP investment immediately and switch the investment to a better scheme.

It’s crucial to review your investment portfolio from time to time and take corrective measures if you’ve picked a bad investment. In case you suspect your fund is underperforming, make sure you monitor it for 3-6 months before taking a call.

This is especially important if the market is volatile. If you remain unconvinced, then take a well-planned call on how you want to exit.

Last Words!

Always keep in mind, SIPs can help you reduce the risk, provided you have chosen the right fund. SIPs have a few limitations that you must keep in mind before investing in them. They are meant for the long term and may not give you a good return in the short term.

Keep reading our article and stay updated with the latest news about Mutual Funds!

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.

Happy Investing!

(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).