Mistakes people make while investing in SIPs
2 June, 2025
Synopsis
Avoiding common mistakes in Systematic Investment Plans (SIPs) is crucial for long-term investment success and wealth creation.
Key errors to avoid include lack of clarity about investment objectives, choosing the wrong funds, setting inappropriate SIP amounts, pausing or stopping SIPs during market downturns, and attempting to time the market.
Additional pitfalls to be wary of are neglecting additional costs like expense ratios, failing to diversify the investment portfolio across different fund types and sectors, and not regularly reviewing and rebalancing the portfolio to ensure it aligns with financial objectives and market conditions.
Mistakes while investing can prove costly in the long run. Although there is no fool-proof investing technique, if one sticks to the basics, the risks of making mistakes can be minimised. Let’s look at some important points we should remember while investing to avoid common SIP investment mistakes.
Avoid These Mistakes in Systematic Investment Plans
Lack of Clarity about Investment Objective
Investing in any asset without a clear objective is like setting off on a journey to nowhere! If you invest in an SIP without knowing the purpose of investing or how much and how long you should be investing, then the chances are that you may end up making losses on your initial investment.
Wrong Fund Choice
You want to take a break by visiting a quiet and serene tourist destination. However, friends and colleagues influence you to visit a popular tourist attraction. The result – you have wasted money, time and leaves. Often, people commit the same mistake while investing. Influenced by trends and returns, and start SIPs in mutual funds that are not aligned with their investment objective or risk profile. This may result in a high-risk portfolio, delay in achieving objectives and even losses.
Inappropriate SIP Instalment Amount
SIP investment journey through the unpredictable market terrain, and choosing an inappropriate SIP amount could be a big hurdle on your wealth creation path. A high instalment could affect your monthly budget and force you to abandon your investment journey midway. On the other hand, if the SIP amount is too small, it may take too long for you to achieve your objective, with the possibility of you giving up your investment because of investment fatigue. The thumb rule is to start SIP with an appropriate amount and increase it periodically in line with your income.
Pausing SIP
Sometime investors stop or pause SIP in a bearish market or exit the market after making a short-term profit. In both cases, investors lose the opportunity to create wealth using the compounding power of SIPs, which works only if one remains invested for a long period. Not only does one lose a chance to create wealth, but investors may end up spending more to create the same amount of wealth if they decide to start investing again. Looking at short-term factors can derail your investment objectives.
Timing the Market
Many of us are aware on the market movements which are unpredictable, and if you try to find the right time to enter the market, the chances are that you may never be able to start your investment journey. If that happens, you will miss out on the wealth creation chances the markets create. Leave alone the common investors, even the experts, who are unsure when to enter the SIP market as various unpredictable factors govern the markets. Timing the market is one of the most common SIP investment errors to avoid. In the case of SIPs, an investor gets more units when the market falls, and over time, this brings down the cost per unit, thus creating an opportunity for more gains – low cost and high value of units in a bull market increase the overall gains. In other words, any time is a good time to start an SIP.
Not Accounting for Additional Costs
.The SIP investment journey comes with additional costs like the fees you must pay to the mutual fund house for managing your funds, transaction fees, etc. If you ignore these costs, the returns you think you are getting may not be actual, but less than that. Thus, you need to consider the fund's expense ratio to get a real picture of the estimated returns.
Not Having a Diversified Portfolio
We keep options for different routes to reach the office to minimise the risk of getting late to the option. Thus, if there is a traffic jam on a couple of routes, the third route may help us reach the office on time. Many times, you would mix and match routes to reach the office. SIP investments are no different. It is possible that the fund you have chosen invests in a sector/asset/theme that suddenly experiences a downturn, and the fund’s performance starts going down. You should be ready with other ‘routes’ for such events to reach your objective. One of the best strategies for having options of multiple routes is diversification - investing across asset classes, sectors, themes, etc., to reduce risk. Starting SIP only in one category of funds is a common mistake that people make. While investing in SIPs, you must diversify your investments across different fund types, sectors, themes, or houses.
Neglecting Portfolio Review
Unless you keep track of the time you reach the office, you will not find out if you are late on a regular basis. This would increase the risk of being reprimanded by the boss. If you review your timings regularly, then you will find out if you are getting late because you get up late or take too much time to get ready, you are leaving late for the office, or are choosing the wrong route. Once you find the answer, you can rebalance your routine to reach the office on time. Similarly, if you don’t review and analyse the performance of your SIP investments, you will not be able to determine whether you are getting expected returns or not. If not, review and analysis will tell you which investments are the laggards, and then you can rebalance your portfolio by replacing the laggards with fast movers. For better returns, you need to avoid the mistake of neglecting the review of your SIP investments.
Understanding and avoiding common SIP investment errors is crucial for long-term financial success. Key SIP investment errors to avoid include unclear objectives, inappropriate fund selection, and attempting to time the market. Instead, focus on maintaining a diversified portfolio, setting suitable investment amounts, and conducting regular reviews. Successful SIP investing is about consistency and discipline, not perfect timing. Use the HDFC Bank SmartWealth App to reduce your SIP mistakes and invest in the funds that suit you. Also, stay updated with your SIP calendar and get seamless portfolio analytics. By sidestepping these pitfalls, you're setting yourself up for a more secure and prosperous financial future.
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