We live in a world where the technology is so good that information is just a few clicks away. The problem isn’t about the unawareness among investors about importance of investing. Rather, it’s about common mistakes that an investor tends to make that prevents them from making big money. In this article we will explore common mutual fund SIP mistakes that slim your chances on making significant amount of money. Before we dive into the common SIP mutual fund mistakes, let’s quickly recall what an SIP is.
What is SIP?
SIP, short for Systematic Investment Plan is one of the ways available to an investor to invest in mutual funds. Under this mode of investment, an investor directs the bank to deduct a fixed sum of money on a particular date at regular date for a fixed period. The deducted money is then used to buy units of the desired mutual fund schemes. Thus, SIP investment allows investors to divide their net investment amount into small, insignificant sum of money.
- It is an investment product
Investors new to the investing world often confuse SIP as an investment product pitched to them. However, it’s merely an investment tool that allows to make regular investments in certain investment products such as mutual funds. So, do not invest in SIP per say, but invest in investment products through SIP
- Investing in SIP = promising and positive returns
Every investor wishes to attain assured returns from their investments. Several investors have this notion that if they invest in mutual funds via SIP mode of investment, it will eliminate the perils of negative or undesirable returns. However, that is not true. Even though SIP investment is considered to be a safer mode of investment than lumpsum investment, they still carry some level of risks. Remember, when you invest in the markets, there is always some level of risk involved.
- SIP is only ideal for big-shot people
Contrary to popular belief, an investor can easily enjoy the benefits of mutual funds by investing in mutual funds through SIP with an amount as low as Rs 100 per month. This allows SIP to be a tool which is accessible to all – rich or poor. This helps even the lower sections of the society or daily wage laborers to enjoy the benefits of SIP investment.
- If you pause or stop your SIP instalments, heavy penalties are imposed
Even if you default on your SIP investments and for some reason are unable to continue with SIP, you can pause or stop your SIP investments without paying any fine or penalty. However, on missing three consecutive SIP investments, the bank might charge you a fee against that. Hence, it is always advised to inform your fund house or AMC (asset management company) well in advance about your decision to pause your SIP investments.
Do not let these false connotations surrounding SIP investments to stop you from achieving your financial goals. Let this be a learning step to unlearn all the false apprehensions you have against SIP and create a financial plan with a clear and informed mind. Happy investing!
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