Mutual Fund SIP: 5 common mistakes to avoid for maximum returns

The mutual fund industry is rapidly growing and lakhs of Systematic Investment Plan (SIP) are being opened byevery month. Inflows into equity mutual funds through the SIP route have increased in the past few years and it touched an all-time high of Rs 9,923.15 crore in August 2021.

Systematic Investment Plans are getting popular among retail investors for achieving their financial goals and building wealth in the long run. SIPs generate returns only if you keep investing regularly in a disciplined manner.

Even though mutual funds investments are rising, most of the investors fail to achieve their desired goals and maximize their returns because they are not aware of the investment mistakes they make while investing in SIPs.

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Here are some common mistakes that SOP investors should avoid to maximize their returns:

Choosing the wrong scheme

SIP investments are made to achieve particular financial goals such as gathering funds for children’s marriage, education, buying a house, or for a special vacation.

The scheme is selected depending upon the purpose and time period. But most people commit a mistake by choosing the wrong scheme. For example, if your decision is one year away it will not be a good decision to invest in an equity MF scheme

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Investing in equity MF scheme for a short duration

If you are investing in equities, it’s recommended to invest for at least five years or more so that you can buy units at every level of the market and get the benefit of rupee cost averaging. For the short-term duration, liquid funds or debt funds are recommended as they ensure stability, high liquidity, and give stable returns.

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Setting too high or too low SIP amount

There is no upper limit to start a SIP, you can invest as much as you can but you should be able to put that amount for the entire SIP tenure. Hence, you should evaluate and decide on an affordable amount before starting a SIP. Use the SIP calculator to determine the right amount to achieve your goal.

On the other hand, a low SIP amount may not be able to give you desired results. Use the SIP calculator to determine the right amount according to your budget and risk-taking capacity.

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Stopping SIPs during a market correction

Retail investors start investing with long-term goals but stop their SIP when the market corrects due to panic and fear of incurring losses. Equity funds generate the best results with a clear long-term timeline and a target amount in place. Celling the SIP during market corrections impact your investments negatively. It is better to continue your SIP during ups and downs so that you can buy units at all market levels and get the benefit of rupee cost averaging.

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Setting Unrealistic goals

Expecting unrealistic goals is the most common mistake that investors make. Returns from mutual funds depend on various factors such as economic conditions and inflation. Setting an achievable and not-too-ambitious goal can help your SIP meet the target based on the income levels to support the plan.