SIPs (Systematic Investment Plans) are often marketed as the easiest way to create wealth. Just set up a monthly investment, sit back, and watch your money grow. Sounds perfect, right?
But here’s the reality: a lot of investors get SIPs wrong and end up losing money in the market.
If you truly want SIPs to work for you, you need more than just discipline. You need clarity, the right strategy, and avoid SIP mistakes that cost investors lakhs of rupees.
In this article, we’ll break down the 5 biggest SIP mistakes investors make and how you can avoid them to get the best results.
Starting SIPs Without a Clear Goal
One of the biggest mistakes investors make is starting SIPs without a clear purpose. Many simply begin investing because they heard about it on the news or from a friend, without understanding what they’re working towards.
Investing without a goal is like setting off on a journey without knowing the destination. You may feel like you’re doing the right thing, but without clarity, your decisions can become inconsistent or misaligned.
If you don’t know what you’re investing for, like retirement, a house down payment, your child’s education, or simply wealth creation (it is also a goal), it becomes harder to choose the right fund type, tenure, and risk level.
Why it’s a problem:
If you don’t have a clear goal, you might stop your SIPs too soon, worry during market dips, or take too much or too little risk. This can slow down your wealth growth and make it harder to reach your goals.
Fix it:
Always decide your goal, time horizon, and required corpus before starting. For example, a person with moderate risk appetite and 2-3 years of time horizon would ideally choose Hybrid or Balance Advantage funds. Want to know your exact fund fit? Connect with us a quick hassle-free evaluation.
Not Checking Overlap Between Funds
Many investors think they’re diversified by investing in multiple funds, but often the underlying stocks or sectors are the same. For instance, putting money into two large-cap equity funds may seem like variety, but if both hold similar top stocks, your portfolio is actually concentrated.
Why it’s a problem:
Overlap reduces the benefits of diversification. If those common stocks fall, multiple funds in your portfolio drop together, increasing your risk unnecessarily.
Fix it:
Before investing in multiple funds, review their holdings to ensure true diversification across sectors, market caps, or themes. Spreading your investments wisely is what truly protects your portfolio during market swings. At Ashvvy, we go beyond the surface, using advanced tech tools to check for stock overlap and make sure your diversification is real, not just on paper.
Not Stepping Up SIP Amounts
It’s easy to set an SIP and forget about it, thinking consistency alone will build wealth. Many investors stick to the same SIP amount for years, even as their income grows. While consistency is key, keeping contributions static can limit your long-term wealth potential.
Why it’s a problem:
A fixed SIP may struggle to keep up with inflation or growing financial goals. Without gradually increasing your contributions, you might fall short of your target corpus and delay achieving your dreams.
Fix it:
Adopt a step-up SIP approach. Increase your monthly contributions annually or whenever your income rises. Even small increments can compound over time, giving your portfolio a significant boost and helping you reach your goals faster.
Increasing your SIP by small amounts every year can significantly boost your wealth over time. Here’s an illustration:
Normal SIP | 5% Step-Up | 10% Step-Up | |
SIP Amount | ₹10,000 | ₹10,000 | ₹10,000 |
Annual Step-Up SIP | 0% | 5% | 10% |
Expected Return | 12% | 12% | 12% |
Investment Horizon | 10 yrs | 10 yrs | 10 yrs |
Investment Amount (in ₹) | 12,00,000 | 15,09,360 | 19,12,536 |
Maturity Amount (in ₹) | 23,23,391 | 27,86,945 | 33,74,375 |
Here we can see that a 10% step-up with the same tenure and amount can make a difference of a whooping 10.5 Lakhs!
Selecting Funds Only Based on Past Returns
It’s tempting to put money into the “top-performing” fund from last year because, after all, who doesn’t want high returns? But blindly chasing recent winners can lead to a risky portfolio that doesn’t suit your needs or withstand market volatility.
Why it’s a problem:
Past performance is no guarantee of future results. Just because a fund performed brilliantly last year doesn’t mean it will do the same this year, and relying solely on past returns can leave you with disappointing results or a portfolio that doesn’t match your risk profile.
Fix it:
Don’t just chase last year’s star performer. Look for funds that have delivered consistent returns across different market cycles. You can check this by looking at a few key metrics:
Alpha: This tells you how much extra return the fund generated compared to its benchmark. (Higher the better)
Beta: It is the risk that the fund is taking to generate per unit of return. (>1 is ideal, <1 is aggressive)
Standard Deviation- This shows how much the fund’s return fluctuates. (Lower the better)
Choosing Direct Funds to Save ‘Pennies’
Some investors pick direct plans of mutual funds to save on small fees, thinking it will make a significant difference. While direct funds reduce expense ratios, they also require in-depth market understanding, research, and portfolio management.
Why it’s a problem:
Without a solid understanding of the markets, it’s easy to make mistakes. You might skip rebalancing, forget to step up SIPs, panic sell when you see any negative news or hold on to underperforming funds for too long. The small fee saved may not outweigh the potential loss from poor decision-making.
Fix it:
Choose the plan that matches your capability and commitment. If you’re confident, disciplined and Market savvy– direct plans can work well. Otherwise, opting for a regular plan with professional guidance can ensure you stay on track and avoid costly errors.
Additional Tips to Make SIPs Work Better
- Start Early: The sooner you begin, the more time your money has to compound. Even modest monthly investments can grow into substantial sums over 10-15 years.
- Stay Disciplined: Treat your SIPs like a recurring bill; don’t skip payments unless absolutely necessary.
- Avoid Emotional Decisions: Market fluctuations are very normal. Avoid panic selling or frequent fund switching based on short-term performance.
- Set Realistic Expectations: SIPs are for long-term wealth creation. Don’t expect instant returns; focus on steady growth.
- Educate Yourself: Understanding the basics of mutual funds, asset allocation, and risk management makes SIP investing much more effective.
Conclusion
SIPs aren’t just about putting money aside every month; they’re about building your future step by step. With patience and a long-term mindset, even small monthly investments can grow into something meaningful, helping you achieve the goals that matter most.
For added guidance, Ashvvy Investment can help you craft a personalized SIP strategy, monitor progress, and make adjustments as your goals evolve.
