I suggest the following 10 mistakes to avoid while investing via SIP.
1. Do not wait for a 'perfect time' to start investing. Once interested and decided start as early as possible, avoiding the other common mistakes also. I market investment there is no perfect time. As heard in reality quizzes in channels, 'Your time starts now'
2. Do not select a Fund that invests in only one or two related sectors. The selection of a fund is important. Chose a fund where the funds are invested in various sectors that are unconnected to each other. This will help as the return on the funds will not be highly affected by a slump in a particular sector by a new govt policy affecting one sector.
3. Do not choose a fund where the NAV is heavily fluctuating or where the portfolios are frequently changed. For this, you have to do a small homework about the shortlisted funds. You should ensure that there is no frequent change of portfolios nor there is stagnation on portfolios. The stocks where the fund invests are healthily traded at volume and price and have a regular return history too.
4. Do not choose a fund without verifying and also comparing the charges. Read the brochures or documents thoroughly and understand the clauses there. You may also compare with similar funds of other houses. The amount invested will be net of these charges.
5. Do not start investing without properly calculating the SIP amount. Fix and earmark an amount you can safely spare every month which will not affect your routine spending and even at times when extra spending is needed like festivals etc. You may also divide and allocate this amount to more than one fund. Unlike RD of banks, SIP is a different commitment.
6. Do not select a period that is too short or too long. The benefit of SIP investment is in the averaging effect of the cost of units in a fluctuating market. A short period may not have much effect or may end in disadvantage. The too long period also may dilute the returns.
7. Do not invest in a fund where you are not able to foreclose or where there are high penal charges for foreclosure. You may need funds for some urgent purposes. In those times you should be able to foreclose the investment and redeem the invested money without much loss and easily.
8. Do not forget to keep a sufficient balance in the bank to service the SIP debits. Be alert and keep a sufficient balance amount in your bank account connected for SIP debit before the SIP debit date. Though you may be getting the ECS alert, you need not solely rely on that. In case the ECS is returned, the charges are high and also you may also suffer cost difference loss even when directly remitted.
9. Do not fix a SIP date without considering your salary date. It is always better to fix the date at a period when you do not need to draw from your bank account and the bank account will be having sufficient funds. Moreover, the first week and last week will be crowded for the banks as well as for the fund houses. Hence you should keep the SIP recovery date after the first week and before the last week.
10. Ensure that you are getting periodical statements or reports on the funds or you visit the fund site and follow up what is happening to your investment Ensure that there is steady progress in the units accumulated and the probable return as capital appreciation and dividend
SIP investment also has the same risks associated with the market investment. However, SIP is convenient for retail investors who can spare some amount regularly for investment but cannot afford to invest in bulk at a time.SIP though may not be helpful to have fast gains
as in other ways of trading and dealing, it is helping in averaging the cost by spreading it on a long term absorbing the seasonal fluctuations in the markets.
Hence the above Don'ts are not comprehensive and just general suggestions and answered as the question was listing ten mistakes.