The systematic investment plan (SIP) is a service that mutual funds offer to investors, where investors can invest in mutual funds every two weeks, monthly, quarterly or annually. While SIP is a blessing for investors, it not only prevents investors from managing the market but also facilitates their disciplined long-term journey toward wealth creation. Regardless of whether SIP mutual fund investors offer multiple benefits, investors often make mistakes that can result in a loss of reserves or an incorrect calculation of the SIP amount or target amount. Here you can read 5 important SIP errors that investors should avoid.
The basic quality of SIP, which sets it apart from other forms of investment, is that you can invest in small amounts. Very often, many investors choose to link a large amount to the SIP without acknowledging the current financial situation. This can lead the investor to abandon the bond halfway or lose interest in investing in more or in the future. Likewise, committing a lower SIP amount may not be enough to reach the target amount. The ideal way to immobilize a SIP amount is to assess your current financial situation, your risk profile and the objective for which you are investing so that your SIP is not a long-term financial burden.
A very common SIP mistake made by investors is that they are investing for a shorter period. Very often, investors do not understand that the value of their SIP depends not only on the amount invested but also on the period: the more you stay invested, the higher the value of your investments. For example, if you wish to invest Rs. 5,000 per month in a SIP for 5 years, the total investment would be Rs. 3 lakes; while the total value created from these investments would be Rs. 4.12 lakes in 5 years at an assumed rate of 12%. By investing in SIP, you have created more than Rs. 1.12 lakes over a period of 5 years. And if it had been invested for another 10 years, the total investment would be Rs. 9 lakes; while the total value created in 15 years would be Rs. 25.23 lakes at 12% per year. The value of the investment results from the investment period and therefore benefits from the capitalization power. The ideal way to invest in a SIP is to stay invested over a longer period.
Starting a PAS early in life with a small amount is a good habit because you cannot afford to invest or lock in a large amount based on your income or salary. As you grow professionally, your salary increases, as do your financial goals or aspirations. Why not your SIP commitment? For example, his initial goal was to take a domestic vacation at the price of Rs. 50,000. So you started with Rs. 1,000 SIP per month for two years. After two years, however, he decided on an international vacation destination. But Rs. 1000 per month will not help you realize your dream. Therefore, it is advisable to feed your current SIP if there is a long financial period, e.g. for example, an annual exam or a bonus to help you reach your dynamic goals.
A common misconception about SIP is that it should be invested in small amounts as it is often reported as an inexpensive investment facility. It is actually intended to promote massive SIP participation of investors who wish to benefit from the prosperity of the stock market with a value of Rs only. 1000. Your SIP commitment should be determined by your current financial situation and the purpose for which you are launching SIP. There is no limit to the amount you want to invest in SIP. For example, if you intend to buy a home in the next 10 years; then you can allocate Rs. 2 lakes to invest in SIP which could reach Rs. 4.65 CRS. At an assumed rate of 12%.
An investor has two options before investing: growth or dividends. The dividend is a retirement from the corpus, and therefore the effect of capitalization is reduced and subsequently affects the growth of the target corpus. If no dividend is paid or declared and the corpus would therefore grow and benefit from capitalization. The best way to invest in SIP is to choose the growth option where the impact on your body is minimal. Although you initially opted for a dividend option, you can either switch to the growth option or opt for the dividend reinvestment option which offers you the same benefits as the growth option or vice versa.