Systematic investing plans (SIP) are seen as the solution to all investment needs. Though they have created money in the long term, the intermittent volatility has made some investors rethink their investments in mutual funds. Some investors do lose out due to lack of patience. Here are three mistakes that can put you off the track to wealth creation using SIP.
Stopping your SIP
Stock markets are volatile by nature. The prices change almost every minute. When the market is trending upwards the investors get a feel of getting rich quickly. However, when the tide turns the going gets tough. For example in the past three months Nifty free float Midcap 100 TRI has lost 11.15 percent. Small and mid-cap funds as a category has lost 9.4 percent over past three months.
Mutual fund scheme investing in mid cap stocks have been posting lower net asset values. The poor performing lot among mid cap oriented schemes have registered worst numbers as compared to the benchmark. No wonder, one-year monthly systematic investment plans have shown accumulated values below the investment amount.
When the SIP returns turn negative many first time investors lose hope and stop their SIP. They fail to understand that the worst of the times offer best of the opportunities to invest their money. A case in point is the massive cuts markets saw in CY2008. Those who continued their SIP, were rewarded with handsome gains.
If an investor decides to sell off all his holdings when the markets are down, he takes home losses.
Not increasing SIP every year
Rarely investors have adequate money to fund all their financial goals. Most of them invest as they earn. SIP come in handy when one is keen to invest at regular interval. However, as one grows in his career, his aspirations also grow. Such enhanced financial goals need to be funded accordingly. This means you have to invest more as you grow. Failing which, the new goals will remain underfunded.
Trying to chase the highest return scheme
This could be the mirage of most investors in mutual funds. Sorting the schemes on the basis of returns and picking the top of the table scheme is the best pastime for many. Unfortunately, the scheme that has given the highest return last year, need not be the winner in this year. Many studies have shown this earlier. If an investor does that he is bound to get nasty surprises. Such an approach makes him sell his investments almost every year with losses.
This can best be avoided by taking financial goals based investing approach. Build a portfolio of schemes that have shown long term performance and invest in them through SIP. Do not chase returns, instead keep increasing your investments.
Also Read: Be Smart. 5 Ways To Earn In Volatile Market