SIP investors often get impatient, expecting quick gains. The real magic unfolds over time, as compounding transforms small, regular investments into substantial long-term wealth.
A Systematic Investment Plan (SIP) is considered one of the best ways to invest in market-linked funds. This is extremely popular as it allows you to build wealth over time through small and fixed contributions. However, there are certain things that investors must avoid to maximise returns. Let’s have a look at some of them.
Not realising SIPs work best in falling and volatile markets
Many investors pause SIPs during market downturns, fearing losses. This is counterproductive. According to Mayank Bhatnagar, Co-Founder & COO, FinEdge, SIPs thrive on market volatility by enabling rupee-cost averaging and helping you buy more units when markets fall. Continuing your systematic investments during such periods can be extremely beneficial towards the journey of long-term wealth creation.
Underestimating the power of compounding
SIP investors often get impatient, expecting quick gains. The real magic unfolds over time, as compounding transforms small, regular investments into substantial long-term wealth. “Staying invested for the long term can significantly increase your corpus, especially if you do not fall into the behaviour pitfalls of greed and fear,” Bhatnagar said.
Expecting SIPs to always beat the market
Some investors assume SIPs guarantee market beating returns at all times. This isn’t true. Markets are cyclical, and all funds go through highs and lows. SIPs are designed to average costs and reduce risk, not eliminate volatility. Focus on discipline over short-term performance.
Starting without a clear purpose
Starting with ‘where to start’ rather than ‘why’ I am investing is a common investing pitfall. “Investing without a clear purpose is one of the worst ways to begin investing. It is like sailing without a compass. Your SIPs should be the outcome of an investing process that starts by defining why you are investing—be it for retirement, your child’s education or building that dream house of yours,” he added.
Not stepping up SIPs regularly
Another common mistake many investors make is not stepping up their SIP amount. This mistake leads to a failure to address any shortfall in your goal achievement. “Let me give you an example: An investor has a retirement goal of Rs. 5 crores in 15 years. He needs to invest Rs. 1 lakh in SIP today to achieve his goal. He starts his SIP with Rs. 40,000 and does not step it up. As a result he is able to achieve less than 50% of his targeted Retirement corpus. Hence, not stepping up your SIPs can leave your goals underfunded over time and can prove to be a costly mistake in the long term,” he concluded.