Systematic Investment Plans (SIPs) are one of the most popular ways for individuals to invest in mutual funds.
They allow for disciplined investing with the benefit of rupee cost averaging, making them an excellent choice for long-term financial growth.
However, even the most experienced investors can fall prey to common mistakes when investing through SIPs.
These mistakes can significantly impact your returns and derail your financial goals. In this blog, we’ll discuss six common SIP mistakes to avoid and provide actionable solutions to help you stay on track.
1. Misaligned Goals
One of the most common mistakes investors make is choosing mutual funds that don’t align with their financial goals and time horizon.
This can cause you to take on more risk than you’re comfortable with or miss out on the growth potential of suitable funds.
Example:
Sneha had a clear goal: she wanted to buy a car in 2 years. Excited by the market boom, she started a ₹5,000 monthly SIP in a small-cap fund for quick returns.
But when the market crashed due to political tensions, her investment ended up in a loss instead of growth.
Small-cap funds, while great for long-term goals, are too volatile for short-term needs.
What You Can Do:
Think about your goals and the time you have to achieve them:
- Short-term goals (1–5 years): Stick to safer options like debt funds or balanced funds.
- Long-term goals (5+ years): Go for equity fund SIPs—they shine over the long haul and give higher returns.
The Nifty Small Cap 250 Index has delivered a staggering average return of 26.93% over the last 5 years.
However, it has seen negative returns over the last 3 months (-11.84%).
On the other hand, some debt funds, which have delivered positive returns over the past 3 months (ranging from 1% to 4%), only achieved an average return of 6-8% over the same 5-year period (as of 13/01/25).
This highlights the importance of understanding the short-term fluctuations and long-term growth potential of different investment options.
Choosing the right type of mutual fund based on your investment horizon is crucial.
Ensure that the fund you select matches your financial goals and risk appetite.
2. Stopping SIPs During Market Volatility
Market volatility is a natural part of investing, and many investors make the mistake of panicking when the market falls.
When the NAV (Net Asset Value) drops, investors often stop their SIPs, missing out on an opportunity to buy more units at a lower price.
Example:
Amit was investing ₹10,000 monthly SIP in a mutual fund. When the market crashed and the NAV dropped from ₹10 to ₹5, he panicked and stopped his SIP.
What he didn’t realize was that this was his golden chance to accumulate double the units at half the price.
By the time the market rebounded, Amit’s returns were much lower compared to those who stayed invested.
What You Can Do:
- Remember, market ups and downs are temporary; they are a normal part of the investment cycle.
- SIPs benefit from rupee cost averaging, meaning that by staying invested during a market downturn, you buy more units when prices are low, which boosts your long-term returns.
- Stay calm and stick to your plan. Emotional decisions rarely lead to the best financial outcomes.
From 2005 to 2024, the benchmark index Nifty-50 produced an average return of more than 16%, but it has seen its worst year with -51.79% returns and its best year with 75.76% returns.
This highlights the importance of staying invested through market volatility to take full advantage of long-term growth.
Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.
— Peter Lynch
3. Missing Your SIP Payments
Missing payments disrupt the compounding process and decrease your returns over the long term.
Additionally, treating SIP payments as less important increases the likelihood of missing them more frequently.
Why It Happens:
Financial emergencies or poor budgeting can cause you to miss SIP payments, disrupting the power of compounding.
What You Can Do:
- Build an emergency fund to cover unexpected expenses without having to miss SIP payments.
- Automate your SIP payments so they get deducted on time, every time, without any hassle. Automation ensures consistency, and you won’t have to worry about missing a payment.
By staying consistent with your payments, you’ll benefit from compounding, which is one of the most powerful tools for growing your money over time.
4. Choosing an Unrealistic SIP Amount
Setting a high SIP amount that strains your monthly budget can lead to frustration and, in some cases, force you to stop investing altogether.
It’s important to choose an amount that fits comfortably within your budget.
Example:
Rahul was excited to start investing and set up a ₹15,000 monthly SIP. But soon, unexpected expenses—like rent hikes and medical bills—hit him hard.
After just 4 months, he had to stop the SIP entirely. If he had started with ₹5,000, he could have comfortably continued investing for years.
What You Can Do:
- Start with an amount that feels manageable and fits your budget.
- As your income grows, you can use Top-Up SIPs to gradually increase your investment amount. The key is to stay consistent, so start small if needed and increase over time.
- Remember: SIPs are a marathon, not a sprint. The goal is to remain disciplined and invest regularly over the long term.
5. Not Reviewing SIP Performance Regularly
Investors often make the mistake of not reviewing their SIP performance periodically.
Continuing with underperforming funds without reviewing their long-term performance can hurt your returns significantly.
Example:
Ankita continued investing ₹5,000 monthly in a fund that gave just 8% returns for 20 years. Meanwhile, better funds were giving 12% returns and more.
The difference? While Ankita ended up with ₹23.2 lakh, a better-performing fund could have grown her money to ₹49.9 lakh. That’s a difference of over ₹25 lakh!
What You Can Do:
- Review your SIP performance at least once a year to make sure it’s still aligned with your goals.
- Compare your fund’s performance with similar funds and benchmarks. This helps you determine if it’s underperforming.
- If a fund is consistently underperforming for 2–3 years (considering the type of fund and other factors while deciding), consider switching to a better option.
6. Frequent Adjustments Based on Market Trends
While it’s important to review your SIP regularly, frequently switching funds or adjusting SIP amounts based on short-term market movements can hurt your long-term returns.
Example::
Meena got caught up in trying to time the market. Every time there was a dip, she switched her funds, hoping to “catch” the best opportunity.
But instead of maximizing her returns, her constant changes only led to stress and lower gains.
Her friend, on the other hand, simply stayed invested in a well-performing fund (despite facing dips during market crashes), and over the years, reaped the rewards of steady, long-term growth.
What You Can Do:
- Trust the SIP process: SIPs are meant to build financial stability over the long term, so avoid making impulsive changes based on short-term market fluctuations.
- Stay patient and disciplined. Short-term market volatility is inevitable, but the key to success is sticking to your plan and letting compounding work in your favor.
Seek Expert Guidance for Stress-Free SIP Investments
Now that you’re aware of the six common SIP mistakes, it’s essential to ensure you don’t let these pitfalls affect your financial journey.
Managing SIPs—selecting suitable funds, monitoring performance, and making informed adjustments—can be challenging, especially when juggling a busy work-life schedule.
Investments are meant to secure a better financial future, fulfill your goals, and give you peace of mind, not add stress.
While you may understand the basics and have the tools to invest, sometimes it’s better to seek expert guidance to navigate this journey effectively.
This is where mutual fund distributors (MFDs) come into play.
These AMFI-certified professionals provide invaluable support by educating investors, suggesting funds that align with your financial goals and risk appetite, and assisting with monitoring and portfolio reviews.
Platforms like Moolaah make this process even easier by connecting investors with experienced and qualified MFDs.
You can browse their profiles, assess their expertise, and select the right partner to guide you toward achieving your financial goals.
With the right guidance, you can avoid common SIP mistakes, make informed decisions, and let your SIP investments work for you—stress-free.
Start your journey with expert support today and build a stronger financial future.
