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One of the most common methods of growing your wealth is through a Systematic Investment Plan or SIP. As the name suggests, an SIP means saving small sums of money over a period of time, which ultimately results in you ending up with quite a large corpus. An SIP is one of the most convenient investment vehicles that lets you accumulate a considerable amount of wealth in the long run.
In order to ensure that you make the most of your SIPs, and grow your wealth to its fullest potential, there are a few basic things that need to be taken care of. Let us discuss some of the common mistakes made by investors that you need to avoid to make the most out of your SIP.
Do not set unrealistic goals
One of the most important things to consider when making an investment decision is to set a goal. Having a definitive goal will give you clarity on several factors, like the tenure of your investment, the number of instalments you have to pay, the target amount, and the time it would take you to fulfil your goal.
Having goals that cannot be monetized within the given time frame makes the goal unrealistic, which can harm your goals and lead you to make investment decisions that are not right for you. Setting a goal that is achievable and suitable for you according to your income and tenure will help you choose the right SIP.
Increase your SIP investment amount
It is always advisable to make investments in an SIP, or any investment, for that matter, based on your income. It is also important to increase your contributions as your income and surplus increase year on year. As you move ahead in your career, your income increases, which results in a better, more expensive lifestyle. Over the course of time, it is crucial to ensure that your investments also increase along with your expenses so you can maintain the same quality of life.
Increasing your SIP contributions over time ensure that your corpus grows and you are able to derive the maximum benefit through compounding and reap the maximum possible returns on your investment.
SIPs & market fluctuations
It is always advisable that you invest in equities in the long term. Equity funds perform the best when there is a long-term timeline along with a proper target amount. However, the market is meant to be volatile and market fluctuations are a part of the investment journey. You should never cancel your SIP during periods of market correction since it can have a negative effect on your investment. While planning your SIPs, you should have a somewhat flexible timeline that lets you accommodate for market fluctuations. During the ups and downs of the market, remain patient instead of cancelling your Systematic Investment Plan.
Review your SIP performance
Investing in an SIP is one of the first steps of your investment journey. Therefore, you need to monitor the investment from time to time, to ensure that your long-term goals are in sync with your SIP.
It is important for you to review your SIPs to help you understand which of your mutual fund schemes have performed according to your expectations and which haven’t. If you find that one of your schemes has been underperforming for the last 18-24 months, you may choose to exit the scheme.
Furthermore, if you monitor your SIPs periodically, you also get an idea of how to rebalance your portfolio depending on your asset allocation.
Invest early
You can invest in an SIP at any point in your life, but it is advisable to start investing as early as possible. Investing early ensures that you get the chance to accumulate a higher corpus, and have a high wealth ratio. Even if you have a lower contribution margin, provided you start early, you have the chance to maximise your returns through the power of compounding. The power of compounding ensures that your principal earns returns, and your returns earn returns. The earlier you invest, the more time you leave for your principal to compound.
Have a disciplined approach
When investing in an SIP, it is important to understand that you have to remain invested until the investment tenure is over. In case you choose to leave the SIP, you may not be able to fulfil your financial goals. Therefore, it is important to be disciplined when making contributions to the SIP.
Before you start your investing in your SIP, you should decide on an amount that is feasible for you, after you meet your regular financial obligations. You can use an SIP calculator to estimate if an SIP will be able to fulfil your investment needs based on your budget, your risk tolerance and the tenure of your investment. It is important that your investment amount is not extremely high, leaving you enough room to navigate your regular expenses.
Following these easy, but important steps ensures that you make the most out of your SIPs. However, always understand that these investments are subject to market risks, and you should always consult your financial advisor before making a financial decision.
