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Common Mistakes to Avoid While Investing in an SIP

There are numerous investment products available in the market, Systematic Investment Plan being a popular option. A Systematic Investment Plan involves investing a small amount every month on a pre-determined date into specific mutual funds. The main goal of such an investment vehicle is to accumulate a huge corpus by investing small amount of money on a monthly basis.

There are numerous advantages of investing in Systematic Investment Plans (SIPs). You may send a one-time instruction for an auto debit every month, thus eliminating the possibility of missing out on a monthly payment. This provides you with a high degree of convenience. You may also benefit from the power of compounding as well as rupee-cost averaging. Besides, Systematic Investment Plans allow you to track the progress of your investments through regular statements. 

To ensure that you gain the most out of your SIP investment, it is necessary to avoid making certain mistakes. Following are five common mistakes that you may keep in mind.

  1. Not determining the right amount to invest

Quite often, investors invest either a little amount or a large sum towards their investment plan. Investing a small sum will take an extended period to meet your financial goals. On the other hand, committing to a huge sum every month will exert a strain on your financial position. You may be compelled to drop out of the investment or may lose interest in investing further. It is, therefore, necessary to evaluate your current financial status and goals while deciding the right amount.

  1. Not investing for a long term

A common mistake among investors is withdrawing their investment at an earlier date. Many fail to realize that longer the period of investment, higher will be the returns. Investing for a long period will allow you to enjoy the benefit of compounding. Thus, it is advisable to stay invested for a long period.

  1. Not selecting the right scheme

There are numerous SIPs available in the market. You may choose a scheme that caters to your needs. You may also consider the scheme’s long-term performance. Avoid investing in a scheme based on its recent performance. It may not necessarily indicate good performance in the long run.

  1. Not increasing the amount occasionally

You may have started out with a certain amount of money. As you grow professionally, you may increase your investment amount. You may consider increasing the amount every time you receive your annual appraisal or bonus. This will help you meet your financial goals and aspirations quite easily.

  1. Not choosing the growth option

You may either choose the dividend option, which is to receive regular dividends or the growth option, which means to invest the dividend further. Choosing to receive dividend is a withdrawal from the corpus, thereby impacting the effect of compounding. Instead, you may choose the growth option and further invest the dividend amount. This will help your corpus grow.

You may avoid the aforementioned mistakes while investing in Systematic Investment Plans. This will help you meet your financial goals and make the most from your investment.

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