Hello Readers!
Systematic Investment Plan (SIP) is considered the simplest way to invest money in mutual funds and an efficient way to create a strong portfolio. This is achieved as SIP lets its investor, buy more units when the equity market is down and lesser units when it’s up.
Investors investing in mutual funds often end at picking up wrong moves in their investment which prohibits them from taking the benefits of SIP, at its full.
Here are we discussing some possible wrong moves that investors end up making with their SIP. Read below to know about them.
Remaining Tight-Fisted
Waking up one day and started investing in Equity mutual funds with a SIP of Rs 1000 for long 20 years, this anyhow won’t work for your wealth creation, neither you will be able to create a corpus for your goal. So, before you plan your SIP in mutual funds, do your maths. Have a financial target in mind – and work backward to arrive at the required monthly investment or say SIP installment as per the corpus and time period of investment required for your goal.
Equity mutual funds like top large-cap and midcap funds in the long-term, have given annualized returns of roughly 12% and 16% respectively. Here investors when they go ahead in their investing, they need to temper their return expectation. Equities can be assumed to give anywhere between 11%-12% annually over the long-term.
Timing The Market
It is one of the big mistakes investors commit while investing in mutual funds via SIP. They often stop their SIP once the market starts showing correction. However, it is always advised them to go pausing their SIP if they are not able to pay their SIP installments for the next some months.
Pausing SIPs midway could prove counterproductive as there are that the investor may miss out on an opportunity to own units at a lower cost when the equity market corrects.
One SIP for All Goals
Tell me do you wear one dress on all occasions? Obviously no, you have different choice of dress for different occasions, then how can one rely on one mutual fund SIP for all their big and short-term goals. Investing in one scheme for all your goals can be convenient for you, but disastrous for your goals.
A SIP way of investing is always beneficial. However, for it to work, investors not only have to stay invested for the long-term but also need to diversify and review fund returns year-after-year.
Wrong Choice
SIP allows its investor to independently choose a date for their SIP deduction from their bank account linked with their investment portfolio. They can go with any date of eth month as per their choice.
However, it is recommended for them to choose a date which is a few days after the usual date of salary credit. This is so because choosing a date just after your salary credit helps you keep your SIP growth away from those unexpected delays. Choosing somewhere at the end of the month might have the possibility of your bank account having an insufficient balance.
No Cushion For Your Long-term SIP’s
Many investors when they face sudden emergencies like unexpected job loss or a medical expenditure, that throw their finances off-gear, in that seen they surrender their long-term SIP. For worse, some also redeem their long-term SIP for these kinds of temporary emergencies.
However, for these kinds of situations, your emergency fund plays a key role. Do build an emergency find in liquid funds and stay flexible.
Last but not the least, make sure that you are investing enough SIP amount in your long-term equity funds. Do diversify your investments and take the ups and downs of the market in your stride. Through these smart strategies, you can withdraw the maximum benefits from your SIP that will take you closer to your financial goals.
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).