SIP investors

5 common mistakes made by SIP investors that affect returns


When it comes to mutual fund investments, many investors tend to opt for a systematic investment plan (SIP) to benefit from the flexibility of small and regular investments, rupee cost averaging approach, disciplined investing, and costefficiency.

However, some common mistakes made by SIP investors have the potential to directly affect the expected returns. As an investor, understanding and avoiding these mistakes is important to maximise your returns. With that being said, take a look at 5 of the most common SIP investing mistakes and how to avoid them.

1. Not understanding the risk profile of your investments

Before you invest in SIP plans, it’s important to ask yourself what your risk tolerance level is—are you willing to take more risk, or do you prefer investments that are less volatile? This will help identify which type of funds you should choose for your mutual fund portfolio.

If you are an aggressive investor looking for higher returns, then equity funds may be ideal for you; however, if you have a lowrisk tolerance level, then debt funds may be more suitable for achieving your financial goals over time.

2. Not assigning your SIP to specific goals

It’s important to classify your SIP according to its purpose or goal – such as retirement, funding your child’s education, paying for your child’s wedding, or taking an international trip. This way, you can understand your timeframe better and structure your SIP investments accordingly.

To ensure that you meet each goal effectively, it’s advisable to start multiple SIPs dedicated to different goals – this will help keep track of your financial progress for each of these objectives.

3. Having a toohigh or toolow SIP amount

If your SIP amount is too high, then it might become difficult for you to manage your other expenses. Likewise, investment returns might not meet your expectations if your SIP amount is very low. So, carefully evaluate the amount that you can consistently commit to investing. For that, you can use an online SIP calculator to calculate the potential returns from different amounts, tenure, and interest rates and decide on the one that aligns with your budget and financial goals.

4. Focusing too much on short-term performance

Evaluating your SIP investment on its short-term performance can be detrimental because markets constantly change, and short-term performance does not necessarily predict future results.

Instead of focusing solely on short-term performance when making investment decisions, consider focusing more on long-term goals such as retirement planning or saving for college tuition expenses to get the benefit of the power of compounding and the rupee cost averaging approach. This will help ensure that your investments remain aligned with your long-term objectives rather than getting side-tracked by daily market fluctuations.

5. Not maintaining discipline

One of the major mistakes made by SIP investors is not maintaining discipline when it comes to making payments. Often, SIP payments may be skipped or delayed multiple times, resulting in missed opportunities and gaining returns differently than expected. To ensure that you don’t miss any SIP instalment, opt for the auto pay feature so that your account will automatically debit a fixed amount from your bank account regularly.

Final words

While everyone makes mistakes, it’s important to try and avoid them when possible – especially when it comes to your SIP investments. Other than the mistakes listed above, you should avoid other missteps such as – not evaluating the SIP mutual fund you choose, being too conservative on equity investing, trying to time your SIP aggressively, setting unrealistic goals, and cancelling SIPs during market volatility.

Most importantly, it is recommended to consult a financial advisor to develop a customised plan tailored to your needs and ensure you are getting the most out of your SIP investments.

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