4 mistakes to avoid while investing in SIPs

Numerous stories exist about investors who made a fortune investing in stocks. But the truth is that successful investing takes knowledge and experience and even then, mistakes can still be made. It’s important to understand the potential pitfalls before you get started in order to avoid costly missteps. When it comes to systematic investment plans (SIPs), avoiding common mistakes is especially critical if you want to realise your long-term goals for wealth-building.

An SIP is a strategy to invest in mutual funds that can help you grow your wealth over time by regularly investing small sums of money towards specific financial goals. However, if done incorrectly or without the necessary knowledge, investing in SIPs could end up costing you more than intended. So, before you invest in an SIP and start building your portfolio, here are some costly mistakes to avoid.

  1. Setting unrealistic goals


The first mistake to avoid is setting unrealistic goals for your SIP investments. For instance, it would be unwise to expect a consistent 10% return each year on an SIP mutual fund over the next decade, as this may not be achievable with current market conditions and the underlying investment strategy. Similarly, aiming to retire within five years could be overly ambitious if the investor’s current income and savings are not enough to support them during this time.

Thus, your goals need to be based on realistic assumptions about your income levels, target amount, among other factors, and focus on achieving long-term stability rather than quick gains.

  1. Stopping or cancelling the SIP during market volatility


When markets become volatile, it’s normal for investors to feel worried about their mutual fund investments. However, cancelling or stopping an existing SIP plan during such times may not be the right move. Not only could you be missing out on potential market gains once the market rebounds, but you could also be missing out on the benefits of rupee cost averaging, which helps average out the highs and lows of the market over time.

  1. Not increasing the investment amount over time


Over time people’s incomes tend to increase due to promotions and salary hikes or through new sources of income, yet many investors fail to adjust their instalments accordingly. This can significantly reduce the total return on their investments as they may not be able to take full advantage of market opportunities due to insufficient capital invested when needed most.

Thus, with time, increase your monthly investment, even if by a small amount. This will ensure that you keep pace with inflation and market movements over time. You can also opt for step-up SIP and invest an additional fixed amount annually to keep up with your financial capacity and set yourself up to reach your financial goals faster.


  1. Investing too little or too much


If youinvest in an SIP insufficiently, then it will take longer to reach your financial goals. And if you over invest then it could limit your ability to manage any unexpected expenses or emergencies that may arise. The amount of money you should invest in SIPs depends on various factors such as your income level, expenses, amount of available capital, risk appetite, etc. You can use online tools such as an SIP calculator to project your estimated returns, compare different SIP plans, and determine the ideal amount of money to invest regularly.

While the above mistakes should be avoided at all costs, there are also multiple tips and advice you should follow for a successful investment strategy. Regularly monitor your SIP investments, compare different  types of mutual funds before selecting one, start investing early, and read the important documents that come with every fund.