5 Mistakes You Need To Avoid While Starting An SIP

Here are some major mistakes that investment experts advise them to avoid while investing:

1] Know the limit of return

Most investors remember the upper limit of return, not the lower limit. For example, in large-cap mutual funds or SIP, one can expect around 11-13 per cent return, which completely depends upon the market performance. Investors tend to forget the lower limit of 11 per cent. Hence, when they look at their portfolio, they are disappointed and stop investing in that fund, which leads to loss of compounding gains that come automatically in long-term investment. 

2] Lack of investment discipline

Generally, people look at the markets forgetting that SIP is like buying the NAV, so it doesn't matter what way the market is going because it affects your previous investment, not the current one. So, don't stop your SIP if the market is going southward and enhance your investment only because the market is going northward.

3] Lack of diversification

It has been found that an investor would put his or her entire fund in one option that leads to disaster in case the option fails to perform. So, it is advised that one should diversify money in small-cap, mid-cap and large-cap funds so that they can get the maximum of their input.

4] Diversification versus duplication of funds

Duplication of the fund in the name if diversifying their portfolio is the common mistake that an investor commits while doing SIP. Getting more than one fund in large-cap, mid-cap and small-cap is not a wise option. Diversification means allocating funds in large-cap, mid-cap and small-cap funds only.

5] Lack of flexibility

It has been found that investors over commit towards their investment without sensing that time won't remain the same throughout life. So, one must plan for the emergency expenditures coming in, or job loss or no salary hike due to some bad performance by the company he or she is associated with. So, one requires cushioning while making an investment plan.