Systematic Investment Plan, or popularly termed as SIP are an investment tool that help investors to their small, insignificant investment amounts into a substantial amount over time. These investment tools are widely used by investors to achieve higher returns on their mutual fund investments through systematic and disciplined approach of investing. However, there are a few common SIP mutual fund blunders that one should look out for. This article aims to highlight the same.
Common SIP mutual fund mistakes
Following are a few common SIP mutual fund blunders that prevent investors from making big money:
- Making hasty and impulsive decisions
Investors often find themselves in a crunch when they get carried away by the benefits of investing in mutual funds via SIP and choose to go big. This results in them allocating a significant sum of money towards SIP mutual funds without examining their present situation and competences. Unable to match these gigantic numbers in the future, they often end up stopping their SIP investments, which is frowned upon by financial experts and advisors.
- Bear vs bull market cycles
SIP mutual fund investors often make the mistake of pausing their SIP investments when the markets are in the bearish phase. This isn’t encouraged by experts as they miss the opportunity of obtaining more NAVs (net asset value) owing to a concept known as rupee cost averaging. In fact, it is advised that one should use the bear market cycles as an opportunity to top-up with a lumpsum amount. One needs to understand that during bearish phase, the investment cost is low, which has a great potential for higher returns in the future.
- No habit of creating a cushion
Several investors make the blunder of going all in and investing their entire savings without considering their future financial condition in the heat of the moment. This might result in an unappreciated and a sticky situation of debt trap. Hence, experts advise investors to create a financial plan and evaluate their financial situation before deciding to invest in mutual funds. - No connection with financial goals
Numerous research and studies are a testament to the fact that an SIP investment started after careful analysis of one’s financial goals and situation are bound to perform better than an SIP investment started on an ad-hoc basis. This is because the former is mostly started after due-diligence and proper back calculation using an SIP calculator to reach a specific target. Mutual funds SIP calculators are an amazing investment tool to help you determine the right SIP investment amount needed to reach a particular corpus. All you have to do is enter the investment horizon, expected rate of returns on your mutual fund investments and you’ll get the magical number within seconds. It is a good idea to factor these numbers against the appropriate rate of inflation, so as to get a real picture about the returns on your investments.
Now that you have got a better idea about the common SIP mutual fund blunders committed by most investors, hope you’ll make a better and informed decision. The next time you begin to invest in mutual funds via SIP mode of investment, do not forget about these common mistakes. Happy investing!
