7 common mistakes to avoid when investing through SIPs

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A common mistake most investors make is setting an unrealistic goal that cannot be monetized within a reasonable time frame.

Systematic investment plans are a convenient and easy way to build long-term wealth, and SIP only works if you continue to invest regularly in a disciplined manner. However, some investors fail to maximize returns from SIP due to basic errors.

Let’s take a look at seven SIP investing mistakes you might want to avoid to get the most out of your SIP investments.

1. Set unrealistic goals

A common mistake most investors make is setting an unrealistic goal that cannot be monetized within a reasonable time frame. For example, you might want to retire early. But there are several factors to consider, such as setting the retirement age, the target amount, and what you will do after retirement. Setting an achievable and not overly ambitious goal can help your SIP meet the goal based on income levels to support the plan.

2. Choose the wrong scheme for the wrong goal

In their quest for very high returns, some investors tend to select programs that may not match their risk profile. Then they end up constantly worrying about market and portfolio volatility. Therefore, always consider your specific financial goal, time horizon, and risk appetite to select the appropriate plan.

3. Invest in SIP Equity for a short time

When investing in stocks, it is recommended that you stay invested for the long term. To achieve short-term goals, you may want to invest in programs that ensure stability and high liquidity, such as liquid funds or debt funds with a shorter or shorter duration.

4. Have a high SIP amount

There is no limit or maximum amount to start a SIP; you can invest as much as you can. However, you have to remember that you will have to stick to the SIP amount until the term of the investment. Therefore, before you start SIP, evaluate and decide on the amount that is affordable for you. Use a SIP calculator to find out your budget and risk appetite and determine the right amount for the term of office.

5. Define a minimum SIP amount

While most mutual funds allow you to invest with a minimum of 500, maintaining the minimum amount throughout the life of the SIP may not be a good idea. This is because a literally low SIP amount may not be able to fund your actual goal, like your retirement, supporting a marriage, or covering your children’s education costs, etc. The correct way to set a SIP amount is to set your goals and assign a value with an assumed reasonable annualized rate of return. Use the SIP Calculator to determine the result and set an appropriate SIP amount.

6. Cancellation of the SIP in the event of market volatility

Investing in equity funds works best with a clear long term timeline and a target amount in place. But suspending SIP during market corrections can negatively impact your investments. Have a flexible investment schedule to deal with market volatility and be patient through the ups and downs of the market.

7. Review SIP performance at short intervals

Reviewing and rebalancing your investment portfolio should be like a hygiene check. Having a very short spread when reviewing and rebalancing your portfolio will not give you the results you want.

Setting up a SIP is smart investing behavior; it simplifies your financial life. It removes the burden of deciding when to make each investment and allows you to meet your commitment to invest in the mutual fund before you even have a chance to spend it.

Having a financial advisor to help you build an ideal SIP portfolio can help you match your goals, risk profile, and time horizon with choosing your mutual fund investments.

(By Renjith RG, Associate Director at Geojit Financial Services)

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