A systematic investment plan, or SIP, is a quick and easy way to build wealth over time. However, some investors make fundamental errors that prevent them from maximizing their SIP returns. Santosh Navlani, COO of ET Money, joined us on The ET Money Show to assist investors in identifying these common blunders and maximizing their investments.
Santosh listed five typical errors. Let’s go over these errors in detail:
Skipping SIP, or the Systematic Investment Plan, is based on investing consistently with discipline. However, despite the enthusiasm with which many investors begin SIPs, many fail to make their monthly SIP payments.
The results are the same regardless of the reasons:
You reduce the power of compounding and miss out on making money. Santosh Navlani shared an intriguing data point on the ET Money Show: From January 2006 to June 2021 (a period of 15 years), an investor who invested Rs 10,000 in the NIFTY 50 through monthly SIPs would earn Rs 53.6 lakh at an average annual rate of 11.9%.The investor’s investment portfolio would fall to Rs if he missed an SIP every 15 years.49.4 lakh, which amounts to a loss of Rs.4.2 lakh over the investment period of 15 years.
Not Increasing the SIP Amount
Many investors continue to invest the same amount annually in SIPs. Nonetheless, as and when your pay goes higher, it is suggested that the financial backer builds his Taste sum. Santosh prescribes expanding the Taste add up to the degree conceivable every year. He explains that, with an annual return of 12%, an investor would accumulate a corpus of Rs 49.96 lakh if he invested Rs 5,000 per month for 20 years.
However, the corpus would increase to Rs 1.15 crore if the same investor increased his SIP amount by 10% annually.
Choosing IDCW Plans Over Growth Plans
The magic of SIP investments is actually compound interest. However, IDCW plans eliminate the compounding effect from your investments. This is due to the fact that you receive periodic returns rather than reinvesting the profits from your investments.
Not Linking Goals With SIPs
Santosh says that not linking goals and SIP investments is like going on a journey without knowing where you’re going. Having specific objectives, such as retirement, marriage, or education, helps investors determine the schemes, risks, and returns they anticipate from mutual fund investments. Again, investors would lose out on getting the most out of their investments if they chose SIPs without having a goal in mind.
Not Monitoring SIPs Periodically
Last but not least, many investors neglect to review their investments on a regular basis. And while it is true that investments such as SIPs do not experience daily market volatility and, as a result, do not require daily attention from investors, the fact of the matter is that investors are unable to invest and neglect their investments. The best strategy is to review investments on a regular basis at predetermined intervals. The intervals could be as short as six months or as long as several years. This is essential for determining the mutual fund winners and losers.
