Mutual funds are considered to be a very good scheme for investment. The method of investing in it through SIP has become very popular very fast. You can start SIP with a small amount and can accumulate a huge fund in the long term.
The reason for this is that the average return of SIP is considered to be around 12 percent which is much better than any other scheme. Due to the benefit of compounding, wealth creation happens rapidly in it. But small mistakes in SIP can cause you a big loss. To ensure that the dream of bumper returns does not remain unfulfilled, understand the mistakes that you should not make.
Ignoring the financial situation
Do not invest a large amount in SIP just to earn more profit, otherwise your budget will get disturbed. It is also possible that you may not be able to continue your SIP for a long time. Therefore, you should decide the investment amount keeping in mind your financial situation. You get flexibility in SIP. You can stop it anytime, pause it in between and increase or decrease the amount in SIP. Take advantage of this flexibility and invest according to your pocket. Then as your income increases, increase the investment accordingly.
Not investing for the long term
You can start SIP for short term also, but if you want to get big profits then invest in it for long term. Risk is less in long term. You get the benefit of averaging. Along with this, you get the benefit of compounding. The longer you invest, the more you will get the benefit of compounding and will be able to create a big corpus.
Lack of diversification
Avoid investing all your money in a single fund. This increases the risk of your investment. Balance your investment in debt, equity and other asset classes. By this, you can reduce your risk to a great extent.
Ignoring the Expense Ratio
Do not ignore the expense ratio before investing in a mutual fund. Usually you might think that if the return of a fund is 15% or 18%, then you will also get the same benefit by investing. But this does not happen because the expense ratio comes in between. The management cost of your mutual fund is called the expense ratio. The expense ratio of any fund decides how cheap you will get a fund. A low or high expense ratio also affects your returns.
Ignoring portfolio evaluation
It is very important to review whatever investment you have made from time to time. If you do not do this, you may have to suffer a big loss. Ignoring the performance of the fund and the changes in the market can affect your returns.
