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  • 10 SIP mistakes that should be avoided while investing in mutual funds in 2020-21 in India?

    Want to know the top mistakes which need to be avoided while investing in SIP/ mutual funds? Looking out for these details online? No worries, our financial experts shall provide you advice here.

    What are the 10 SIP (Systematic Investment Plan) mistakes that should be avoided while investing in mutual funds in 2020-21 in India? I want to invest in Mutual funds before investing I want to know the common mistakes that can cause investment failure. So anyone can share some tips so that my investment should grow in future.
  • Answers

    3 Answers found.

  • 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.

  • The following are the mistakes generally committed.
    1. By checking the recent returns we will get tempted to invest in those funds. But we should check for a long time record.
    2. Without studying the complete details never decide on the fund. All details and factsheets of the fund should be carefully studied before making a decision.
    3. You should not allocate the amounts without making a proper investment plan. A robust portfolio will give you a long term good returns.
    4. Income tax implications should be checked properly and should be taken into account before making a decision.
    5. Don't wait for a perfect time for investing. When you want to invest study the market select the best fund and invest then and there itself.
    6. Never invest only in one fund. Concentrate on different funds and select a few for investing your funds.
    7. Don't take any decision without understanding the whole issue properly. If necessary you can go for advice from a good professional.
    8. Don't forget to opt for the step-up option. This will make you increase the instalment amount annually once.
    9. Never forget reviewing. Once in a while, you study your portfolio and decide about from which funds you can exist and where you can invest.
    10. Avoid selling when NAV falls. That will give you fewer returns. So wait for the correct time to sell.

    always confident

  • SIP mode in Mutual Fund investment is a popular option and many investors go for it. The main purpose of SIP is two fold. First is that one can invest every month some amount as per one's capacity and it is a systematic way of investments as the investor will be able to buy less or more number of MF units of that particular scheme depending on the market trend. This does an averaging in the buy price and helps in reducing the risks of investing all the money at one time when unfortunately the market might be higher than average of last few months. So there are many likewise interesting ideas attached to SIP mode and it has become a choice of many investors.

    At the same time SIP investment is also as risky as any MF investment in the market and one has to avoid the mistakes that are generally mentioned when we advise people for making investment MF arena. Let us see some areas of caution related to this -

    1. Financial objective - There are various MF schemes which are available in the market and they have different yields with time. Some can be for short term investment while others may be for long term goals. So the investor should know when he will be requiring money back and accordingly he has to plan to invest in the appropriate scheme. Investing without a financial goal will be a hasty decision.

    2. Tax considerations - Some schemes give some tax advantages and those who fall in that bracket can benefit by these schemes and should consider this element also while calculating the expected yield on their investments.

    3. Capacity for investing - This is an important aspect and in a haste or hurry sometimes people commit a big amount for SIP and cannot maintain that which makes the real embarrassment later. So, one has to be sure of how much one can easily contribute without compromising on other expenses.

    4. Understanding scheme portfolio - Every scheme is different from the other scheme as their investing patterns in different stocks differ and that has a big bearing on the performance of the mutual fund. This requires some study and in depth knowledge about the portfolio companies in that particular mutual fund scheme. It may also require consultation with the expert on the matter.

    5. Risk taking capacity - Every individual is not ready to take risks. The risk appetite differs from person to person and there are sometimes some unfortunate incidents in the market which create a big slide and then in state of the ongoing panic some less risk averse persons offload their units in rock down prices incurring huge losses.

    6. Knowing about comparatively safer investment areas - Mutual Fund is not the only investment avenue and there are many more there where one can more safely invest. This aspect is also to be kept in mind.

    7. Knowing about a scheme in details - Different schemes have different prospectus and have many fine points about them. It is a good practice to go through these details before investing. That s called intelligent investing.

    8. Single scheme or multiple ones - This is another area where some homework is to be done. One scheme may be doing very good in comparison to other schemes but it does not mean that we will be investing all our corpus in one of them. Remember due to variations in business prospects in various industries the scheme which is doing good today may not do good in future as there are many factors which decide it. So going for multiple schemes is better than one scheme.

    9. Panic selling - An investor should be patient and steady in his approach. Many of us lose heavily when there is a bad news and people start selling and then the NAV goes down and we also join others in that selling spree only to find that after a few months the units are significantly much more than their earlier values.

    10. Investment duration - Generally share market and mutual fund investments are long term investments and it is only in rare occasions that one sells them early. The real growth comes in long time only.

    Knowledge is power.

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