SIP investments allow individuals to invest a particular amount regularly in a mutual fund. Flexibility, simplicity and accessibility of systematic investment plans in combination with the benefits of professional management and diversification have made it a popular choice for investors. Even though SIP is easy to use, there are inevitable common mistakes that investors make and experience losses in the long run. This article will discuss some of the common mistakes that investors must avoid when they invest in mutual fund.

SIP Investments: Common Mistakes To Avoid

When investing in SIP via a mutual fund app, make sure to avoid the following common mistakes that most mutual fund investors make:

• Stopping your SIP during the market downfall

Any time the market experiences a downfall and situations become severe, investors end up getting anxious. Under this panic, they make decisions such as stopping their SIPs. According to these investors, stopping an SIP during a market downfall may prevent future losses. However, this point of view is counterproductive when discussing SIP. SIP takes advantage of fluctuating markets via rupee cost averaging. Hence, when the markets fall and prices also decrease, investors must purchase additional mutual fund units at the same amount of SIP. When the market recovers eventually, the mutual funds you purchase at lower prices will provide higher overall returns.

• Investments without research

One of the common mistakes mutual fund investors make is following investment choices blindly suggested by family and friends without efficient research. According to such investors, a mutual fund scheme may give them better returns because it has performed well earlier. However, just because it worked well for someone else does not come with a guarantee that it will provide you with the same.

Everyone comes with different risk tolerance, financial goals, and investment horizons. As per your factors, you must perform an in-depth research about a fund on the basis of certain things like its performance over the past years, risk-adjusted ratios, expense ratio, exit loads, and AMC assets under management, and then ensure the fund aligns ideally with your financial situation.

• Ignoring the performance of funds

The performance of a MF might fluctuate from one year to another. This year, it might provide higher returns and outshine your expectations, while the following year, it may underperform because of different reasons. Several investors end up making the mistake of not considering such changes. They assume that a particular fund will deliver the same results consistently. However, none of the funds stay consistent with the fluctuating market conditions, and by ignoring the performance of these funds, you might hurt your financial goals.

• Overlooking the tenure of SIP

The tenure of your SIP must align with your financial goals, so you don’t need to extend it unnecessarily or stop it early. Generally, investors with long-term goals must prefer equity mutual funds as they provide better returns, and the risk associated with these funds goes down as long as the SIP continues. Once you get closer to your financial goal, you can replace your corpus with a better investment option to reduce risk and preserve your capital.

Conclusion:

When managed wisely, SIP can be a significant wealth-generating tool. However, before starting your SIP journey, be sure to make wise decisions, such as consulting with a professional investment advisor. Through professional advice and guidance, you can avoid such common SIP investment mistakes, create a better investment strategy and make informed choices aligning with your risk tolerance and financial goals. Even a minor investment mistake at present might bring you losses tomorrow; hence, with expert advice, you can make wise decisions for your financial stability.