Investing in Mutual Funds through the Systematic Investment Plan (SIP) route, especially during market downturns, has been highly popular and rewarding for the investors in long term. However, many investors take a casual approach towards investing in SIPs which leads to making some avoidable mistakes, leading to losses or non-optimal returns.
Here are some of the common SIP investment mistakes that investors should avoid to achieve their financial goals:
1. Not choosing the right Mutual Fund Scheme: Investors should do their homework and do thorough research about past performances, fund managers, risk parameters, asset allocation, and management fee before choosing the Mutual Fund scheme for SIP investment. Investors should avoid blindly following the herd mentality or recent past performances of the schemes.
2. Ignoring Diversification: Mutual Fund schemes provide various investment options across different sectors, themes, market-caps, and asset classes for investors to choose from. It is always advisable to diversify the SIP investments across different schemes, rather than investing in a single scheme. This would help minimize the overall risk exposure in the portfolio.
3. Timing the Market: Many investors try to time the market by trying to purchase units of mutual fund schemes when the market is low and sell them when the market is high. This is an impossible task and only leads to more stress and wrong-timing decisions. By investing regularly through SIP, investors can average out the cost of units purchased by investing at every market cycle.
4. Not revisiting the SIP Investment Plan regularly: Investors should review their SIP investment plans periodically to analyze their financial goals, market performance, and funds’ performance. They should also revisit their asset allocation and investment horizon to ensure that their current SIP investment plan is aligned with their long-term financial goals.
5. Exiting the SIP investment plan too early or too late: One of the most common mistakes investors make in SIPs is exiting the SIP investment plan too early or too late. Investors should follow their financial goals and investment plans rather than the market noise or short-term market trends. Exiting the SIP plan early without considering the opportunity cost of early redemption or staying too long in a non-performing fund can severely impact the overall returns of the portfolio.
In conclusion, SIP investment plans are an excellent investment tool for long-term investment goals, but investors need to be aware of the common mistakes to avoid. By choosing the right Mutual Fund scheme, diversifying investments, avoiding timing the market, revisiting the SIP investment plan regularly, and exiting at the right opportunity, investors can achieve their financial goals and the best possible returns for their investments.
Summary: Investing in Mutual Funds through the Systematic Investment Plan (SIP) route for long-term financial goals is highly rewarding. However, investors should avoid common mistakes such as not choosing the right Mutual Fund scheme, ignoring diversification, timing the market, not revisiting the SIP investment plan regularly, and exiting the SIP investment plan too early or too late to achieve optimal returns and minimize risk exposure in their portfolio.