Mutual fund SIPs are being preferred by retail investors as an option to invest in a regular and disciplined manner. In fact, SIP helps retail investors to build a large corpus with the help of compounding. But due to lack of information, many SIP investors, especially new investors, can make investment mistakes. In the case of investment, mistake can directly cause you to lose money. Either you may suffer losses or you will not get good returns. Here we are going to tell you about 5 common mistakes that can ruin the money of SIP investors. It is important that you avoid these mistakes.
Considering low priced NAVs cheap
Many retail investors consider a fund with a low NAV to be cheaper and thus invest in that fund through SIPs in the hope of earning higher returns. However, there are many reasons, due to which the NAV of a fund can be more or less. For example, the NAV of a fund depends on the market value of its underlying assets. Hence, the new funds will have lower NAV as compared to the old funds. Investors should not just look at the NAV of the fund while considering investing in mutual funds through SIP.
Opting for dividend option instead of growth plan
Many investors opt for dividend plans instead of growth options, as they find the dividend income of mutual funds more appropriate. However, such investors are unaware that the dividend is paid by the fund from its AUM (Asset Under Management). As a result, the NAV of the fund gets reduced due to payment of dividend.
Stopping SIP on market downturn
Many investors often discontinue their SIPs when there is a market downturn or recession because they fear more losses. However, doing so is disadvantageous, as in case of market downturn, higher returns can be made by buying more units at lower NAV in the fund. Continuing with SIP in case of market downturn will reduce your investment cost and yield higher returns in the long run.
10 of 20 mindset
Never invest with a 10 to 20 mindset. That is, your money will not double overnight. Strong returns during the market rally prompted a large number of new retail investors to invest in equity funds through SIPs. Many people invest in equity funds through SIPs for their short term financial goals in the hope of strong returns. Whereas SIP is for long term target.
View only recent performance
Many SIP investors choose the fund based on the fund’s recent performance. Especially the returns received during the last 1 year. However, it is not correct to look at such outperformance or under-performance. Check the annual returns of the fund for at least 5 years.
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