Common mistakes made by SIP investors and how to avoid them

What is Systematic Investment Plan
Cropped Image Of Businessman’s Hand Protecting Coins From Falling While Playing Domino On Table

Systematic Investment Plan (SIP) is a great way to save for long-term goals. SIP enables investors to reap the benefits of the rupee cost averaging strategy and the power of compounding. Here are five mistakes you should avoid making while investing in these plans.

SIPs are a simple and practical way to accumulate money over time but prove beneficial only if you make disciplined regular investments. The right mutual fund requires more than just good returns. It should also be cost-effective, managed by the right professionals, and align with your investment objectives. And you should also evaluate how the mutual fund has performed during the market downturns and how much risk it is taking.

Often, people think SIPs are an easy investment option and end up choosing a plan that does not align with their financial objectives. However, a lack of product knowledge can lead many Systematic Investment Plan investors, particularly new investors, to make poor investment decisions. To help you make smart choices, we have devised a list of dos and don’ts which you should remember while investing in SIPs.  

Four mistakes to avoid while investing in Systematic Investment Plan

Starting with an unrealistic goal or without any specific goal

Setting an unrealistic aim that cannot be monetised within a reasonable time frame is a mistake most investors make. For instance, you could desire an early retirement. However, you must consider your retirement age, the desired amount of wealth you want to amass, and post-retirement plans. Setting a realistic target with achievable timeframes can keep you from being discouraged.

Undisciplined investing

Failing to maintain discipline can derail your investment plans. You won’t reach your goals if you start your Systematic Investment Plan and stop it in the middle. Make sure you commit to the investment you are making. Choose an amount you can comfortably invest over your decided timeframe.

Investing for a short period

Selecting SIP investments with a short term is another typical mistake that many people make. They choose an investment term of fewer than three years because they believe they can reap good returns in that period. However, unless your investment goal is specifically for the short term, you should invest in SIPs for the long term for maximum wealth creation.

Discontinuing investment during a volatile period

Investors experience fear and panic due to a fund’s poor performance during market turmoil. You may be tempted to discontinue investments at this point. Any short-term volatility may impact the fund’s performance, but if you have chosen the correct mutual fund, be patient and resist temptation. You should continue with your SIPs during a bear market since you may purchase more mutual fund units for the same amount.

A SIP streamlines your financial life and is an intelligent investment. It relieves you of the responsibility of timing the market and enables you to stick to your financial goals.

Your goals, risk tolerance, and time horizon should be accounted for when choosing the right mutual funds to invest in. With Geojit, you can make smart investments conveniently and have a financial expert help you through the process.

Click here to view Geojit’s equity fund recommendations and debt fund recommendations

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