For many years, investing in mutual funds has become a foremost choice for the people in India when it comes to meet their financial needs (it can be both short-term and long-term). The prominent reasons for the rise in the number of people putting their money into the mutual funds can be attributed to many reasons like growth in the stock market, other investment options such as the real estate, bonds, gold, etc not giving the better returns as expected. The reasons for mutual fund investment can be many; however, what is important here to keep in mind the mode through which you are investing in the mutual funds.
There are two popular modes like lump sum or Systematic Investment Plan (SIP) that the people in India generally use for the mutual fund investments. For example, if you plan to Invest Rs 30,000 at once in the mutual funds, then it is known as the lump sum investment. On the other hand, if you wish to invest through the installments, like Rs 500 for the period of 5 years, then it will be called as making an investment in mutual funds through SIP.
There is no doubt that mutual fund investment through SIP is considered as one of most the feasible options in India but here are some of the common mistakes to avoid while investing through SIP to achieve the financial goals easily:
Not Knowing the Right Amount to Invest in SIP
It is one of the biggest mistakes that a large percentage of the people in India commit while investing through the SIPs. Sometimes, people decide to invest a significant amount of money in the SIP without having a good knowledge about the actual status of the mutual fund that they are planning to invest. This may lead to considerable amount of losses, which may discourage the users and they quit. Hence, it is extremely important that you must carry out a comprehensive amount of research work with regard to the amount to be invested in the SIPs.
Not Investing Large Amount
Most of the investors in the mutual funds, especially the first timers, tend be quite cautious while investing. They like to invest Rs 500 or Rs 1000 to ensure that they do not suffer any huge loss. There is nothing wrong in putting up small amount of money in the mutual funds. Even Warren Buffet, one of the most successful investors of all time has said that the depth of the waters must not be tested with the both feet. However, over the period of time, when you become quite comfortable investing in the mutual funds through SIP and you do not have any apprehensions left, then you can plan to increase your monthly SIP amount to meet your financial objectives taking into an account the rising cost of inflation every year.
Waiting for the Better Stock Market Performance
It is one of the huge mistakes of most of the people in India when considering making an investment through SIP. People wait for the stock market to be bullish in order to start planning an investment, which is totally a wrong practice. This is because it has to be taken into the consideration that investing in mutual funds through SIP is considered for the long-term purpose. Furthermore, stock market is extremely volatile, which means that the market can reach higher on one day and go down another day. When investing, especially for the long-term, then you must ignore the fluctuations in the stock market, invest for the longer period of time and reap the benefits in terms of the better or high returns.
Not Selecting the Right SIP Investments
When you are formulating plans to invest in the mutual funds through the SIP, then you must ensure that the right fund or SIP investment has been selected. It will ensure that you have an ample amount of money to take care of your future financial needs. In case, you take any wrong decision and invest in the wrong fund, then there are chances that you may not get the better returns as expected. Hence, it becomes quite a prominent task to research about the SIP investments that you are planning to make by looking at the various parameters like the history of the fund, expense ratio and most importantly the credentials of the fund manager.
Suddenly Stopping the SIP
Mutual funds investment can only be successful, if it is carried out or held for the long time. However, there have been the cases, when most of the investors suddenly stop the SIP if the stock market is bearish for the short period of time. In such a situation, the investors lose their patience and stop the SIP midway to avoid any more losses. The volatility in the stock market tends to drive away the investors, which is essentially a mistake they are committing. If the investment portfolio is in red, then instead of quitting or stopping the SIP, it is imperative to be patient and do not get disappointed by the market fluctuations.
Conclusion
It is better to be an educated investor rather committing the mistakes when investing in mutual funds through SIP. An in-depth research work must be carried before making the SIP investments as this will ensure that you are able to meet your financial objectives in a hassle-free manner.
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