Home Loans
Personal Loans
SME Loans
Business Loans - Udyog Plus 
Loan Against Securites
Loan Against Property
Mutual Fund
Stock and Securities
Wealth
Portfolio Management Services
Pension Funds
Life Insurance
Health Insurance
Wellness Solutions
Pay Bills
Pay for anything
Pay Anyone
Pay on Call
Payment Lounge
Credit Cards
1800-270-7000-
Our Products
-
Self Care
- Downloads
- Learnings
- About Us
-
More
-
Shareholders
-
Shareholders
-
Updates
-
-
Wealth Calculator
-
Shareholders
ABC Solution 
Loans
Insurance
AppStore
PlaystoreAditya Birla Sun Life AMC Limited
Aditya Birla Sun Life AMC Limited
5 SIP mistakes you must avoid
Feb 26, 2018
4 mins | Views 7049
Today, you have more investment avenues open than ever and those too are made easier with options like Systematic Investment Plan (SIP). However, something that’s supposed to make your life easier can often be troublesome if not used properly. The same goes for SIPs too. One wrong move can hamper your investment objectives and deter you from extracting the most from them.
Deciding on a High Investment Amount
SIPs are similar to your Equated Monthly Installment (EMIs). You need to invest a sum of amount each month or quarter and commit to the investment amount throughout its tenure.
But don't get too carried away and end up committing a high investment amount that will be difficult to arrange month on month. For example, when you are single, it would be easier to invest a big amount. However, when you have a family, continuing the same large amount can be a little difficult.
Solution:
Assess your overall capabilities in the long-run and then decide on the correct investment amount that you can part with each month. If possible, opt for a plan that allows you to increase periodically the amount you invest.
Related: Spending too much and regretting it? Get an investment you can afford without sacrificing your awesome life!
Opting for a Short Tenure
People want more money in less time and get into an SIP for that objective. But, when you opt for a small tenure like 1-2 years, you are at a higher risk of market volatility.
The market is prone to ups and downs throughout the year and a shorter tenure lessens your chance of cost averaging. Therefore, there is a higher chances of lower returns in a shorter tenure. This depends on whether or not the market sees a bull run.
Solution:
Opt for a longer tenure in order to tap into averaging benefits of SIP and you stand a chance to get reasonable returns. Historical performance over various periods of time suggest that the markets have a much lower chance of loss if you hold on for long period say over three years. Moreover, by increasing the tenure of the SIP, you can also lower your monthly expenses.
Related: Expectations vs. Reality in money can be brutal. Know what it needs to make your dreams come true
Abruptly stopping an SIP
Investors are wary of market conditions. When the market is down, investors tend to lose hope and discontinue their SIP abruptly. The risks of greater market volatility drive them to stop their investments. After all, seeing red marks all over your portfolio value can make people panic. But that is where they are going wrong.
Solution:
Take a retail sale for example. Does a fall in value cause you to stop buying? No, in fact, you wish to take advantage of the discounts. Consider the market fall in the same fashion. Continue your SIPs. You can buy more mutual fund units for the same price when the market is down. In the long run, this can help bring down your total cost of investment. Plus, SIP investments are distributed over several months. This also helps to reduce the adverse effects of market downturns.
Related: Mutual Fund investments are subject to market risks. But do you even know what that is?
Set-up and Forget
A lot of people tend to forget and often fail to renew their SIPs on time after they have invested once. That’s like leaving a cooker on low flame and never checking if the food has finished cooking. You will end up with burnt food. Similarly, you will end up losing your opportunities.
Solution:
Renewals are the best time to rethink your investments. Does the mutual fund remain significant to your investment strategy? If yes, then continue to invest. Otherwise, switch to others if needed.
Choosing Dividend over Growth
The power of SIP lies in the benefit of compounding. This is when you get an interest or return over your past interest payments, thus creating a chain of interest and could help generate reasonable returns over a long period of time. In the case of SIP, this happens when you reinvest your dividends to purchase more MF units. However, investors often opt for the dividend payment option. This defeats the compounding effect.
Solution:Growth may be a better option for you as compared to Divided, unless you are in need of the secondary source of income. In you are investing for the long term, the Growth option may help you achieve your goals. If you need help deciding what it is you are planning for- be it your child’s education, your own retirement or even a major purchase, here’s how to Know what you want to get what you want.
If you caught yourself nodding to some of these mistakes, don’t fear. It’s never too late to correct mistakes. If you think you are committing one or more of these, just opt for the solution. Most importantly, rethink and make an informed decision.
Let's look at some common mistakes and the probable solutions for the same.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Leave a comment
Load More
Our Experts
Tools and Calculator
RSS News Feed
-
This bank offers up to 7.25% saving account interest rates, 8.5% FD rates; check details
New vs old tax regime - which is beneficial for you? Amount of deductions you can claim decides
Car buyer wins Rs 15 lakh compensation as company couldn't fix engine fault despite multiple seizures
A financial literacy letter to my younger self
Source: ET Wealth
-
How can you cultivate a strong financial safety net for your siblings?
Demat Account: How to benefit from corporate announcements?
Source: Livemint
Archives
close
hovertozoom
On 6/19/2019
On 5/7/2019
On 5/7/2019
On 9/12/2018
On 9/12/2018
On 9/5/2018
On 8/14/2018
On 8/13/2018
On 8/13/2018