5 common mistakes made by SIP Investors and how you can avoid them

Saving money for long-term objectives is simpler with Systematic Investment Plans (SIPs). Investors can benefit from compounding phenomena and the rupee cost-averaging strategy by using SIP. SIPs are a simple and effective way to build up your savings over time, but they only work well if you make consistent, disciplined investments. The ideal mutual fund needs to offer more than just strong returns. Additionally, it should be affordable, administered by qualified experts, and consistent with your investing goals. Therefore you must assess the mutual fund's performance during market downturns and the level of risk it is carrying. People typically choose an investment strategy that does not meet their financial goals because they believe SIPs are a simple option for investing. But many SIP investors, particularly new ones, can make poor investment choices due to a lack of product knowledge. Well, these are the most common mistakes which SIP investors make and you can avoid them.

 

1.     Starting with an unrealistic goal or without any specific goal- The mistake most investors make is that they set an objective that cannot be realized within a reasonable time frame. You might want to retire early, for instance, however, you must also take into account your retirement age, the desired level of wealth, and post-retirement goals. You can avoid getting disappointed by setting achievable goals within a realistic timeframe. 

 

2.     Undisciplined investing- Your investment plans could be derailed if you lack discipline. If you start your SIP and stop it in midway, you won't achieve your goals. Make sure you are fully committed to your investment. Your future will be more organized with a SIP, which is also a wise investment. It frees you from timing the market and helps you to stick to your financial objectives. 

 

3.     Investing for a short period-  Another mistake that many people commit is choosing SIP investments for a short period of time. They opt for a shorter investment term which is less than three years because they think they will get good returns during that short period of time. To generate higher returns, you should invest in SIPs for the long run, unless your investment objective is exclusively for the short term.

 

4.     Discontinuing investment during the volatile period- If a fund performed poorly during the market's volatility, investors become anxious and fearful. This is the stage where you might feel tempted to sell your stakes. The performance of the mutual fund could be impacted by any short-term volatility, but if you have chosen it wisely, be patient and fight the urge to sell. In a declining market, you should maintain your SIPs because you could get more mutual fund units for the same money as that is the time to seize the opportunity.

 

5.     Getting too much impulsive- The whole point of SIP is to take a back seat and maximize time to your advantage. Don't try to time the market or be overly aggressive. It is not required. It is not necessary to take any specific actions, such as raising the SIP amount when the market declines or lowering it when the market rises. Just allow it to maintain its composure and self-control.