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10 common mistakes made by SIP investors
30 Oct 2023

An equity mutual fund SIP is one of your best bets to create wealth in the long run. But to make your SIP work hard for you, you need to take care of some of the basics. The very name “SIP” is quite suggestive. It is based on the premise that if you keep saving small bits over a period of time then it eventually grows into a large corpus. Did you know that there are some basic mutual fund mistakes to avoid? What are these common SIP investment mistakes and how can you as an investor avoid these common mistakes made by SIP investors. Here are 10 such SIP mistakes that you must avoid to make the best of your SIP.


1.  Starting too late on your SIP

The beauty of a SIP is that the earlier you start the better it is. The earlier you start the more your principal earns returns and the more your principal earns returns the more your returns earn returns. In simple terms this is called the power of compounding. Over the longer period, it is time that really works in your favour. Consider table below:


ParticularsSIP for 25 yearsSIP for 20 yearsSIP for 15 yearsSIP for 10 yearsSIP Invested inEquity FundsEquity FundsEquity FundsEquity FundsAnnualized CAGR14%14%14%14%SIP runs for25 years20 years15 years10 yearsMonthly SIPRs.8,000Rs.12,000Rs.16,000Rs.20,000Total InvestmentRs.24.00 lakhsRs.28.80 lakhsRs.28.80 lakhsRs.24.00 lakhsFinal SIP ValueRs.2.18 croreRs.1.58 croreRs.98.06 lakhsRs.52.42 lakhsWealth Ratio9.08 times5.49 times3.41 times2.18 times


It is evident from the above table that by starting early, not only do you create the maximum wealth even with a lower contribution but also end up with a very superior wealth ratio. Avoid the mistake of starting late on your SIP.


2.  Being too conservative on equity investing

When you are investing in SIPs for the long run, you are designed to take on the risk of equities. Of course, don’t take on the risk of sector funds and thematic funds. They are cyclical and are best avoided. But if you stick to diversified equity funds then you can multiple your wealth with a high degree of safety over the long run. Don’t be too conservative and opt for debt funds or index funds. Equity funds should be the choice.


3.  Opting for dividend plans rather than growth plans

Don’t make the mistake of opting for dividend plans. You get the dividends and you use up the dividends for your consumption needs. Rather opt for a growth plan where there is automatic reinvestment of the fund returns. Also when you tie down your SIP to a long term goal, it is easier to monitor through growth plans.


4.  Not maintaining discipline

One of the cardinal mistakes of SIPs is to not maintain discipline. Once you start your SIP you must continue it. That discipline is crucial to the success of your SIP. If you start your SIP and leave it half way, then you are not going to have enough funds for your goals. Even if you have financial constraints, ensure that your SIP is a necessary discipline and under no circumstances will you disrupt your SIP.


5.  Getting married to an AMC rather than the SIP

This is a common mistake that investors commit. They get carried away by the name and pedigree and foreign ownership of mutual funds. Despite consistent non-performance they continue to stick to the same AMC. If you find it inconsistent in performance then just think with your feet. Your commitment is to the SIP and not to the AMC. Feel free to select the AMC that best serves your purpose.


6.  Getting into the lure of sector and thematic funds

We have said this before. Sector funds and thematic funds are not for SIP long term investments. They are cyclical and they make your portfolio too concentrated. Always stick to diversified equity funds. They give you the benefit of alpha without the risk of concentration.


7.  Trying to time your SIP to aggressively

The whole idea of SIP is to be passive and make the best of time in your favour. Don’t try to get too aggressive and time the market. That is not necessary. Actions, like increasing the SIP amount when market comes down or reducing the SIP when the markets go up; are all not required. Just let it stay passive and let it stay disciplined.


8.  Not monitoring SIPs aggressively

Investing in SIP is only the first step. You need to monitor the same. Monitor the SIP against your long term goals and see they are sync. Monitor your SIP to gauge whether the returns and the risk is in tune with your choice. Also monitor the SIP for constant management changes, frequent policy changes and any regulatory lapses in the fund.


9.  Keeping a very short time frame

People like to evaluate their SIP performance over 2-3 years. That is likely to give a wrong picture. Ideally, keep a time frame of 10-12 years at the bare minimum. That is when your SIP can even out the market cycles and create wealth for you. In fact, SIPs work best when you look at long time fames of 20-25 years. Above all, stay disciplined.


10.  Not tagging your SIP to specific goals
This may be the last point, but this is where it should begin. Ever SIP should have a purpose and a goal. Your SIPs should be tagged to a particular goal like retirement, child’s education, child’s wedding, foreign holiday etc. Once this classification is done, you are clear about the time frame and you can structure your SIP accordingly.

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