4 Common Mistakes To Avoid With Equity Fund SIPs

  Author: Kundan Kishore

Investments in equity mutual funds or equity funds that invest money from investors in equities can be typically rewarding when you stay invested for 8-10 years or more. A great way of investing in equity funds for small investors is investing regularly through systematic investment plans (SIPs) in equity funds. It is here that investors need to ensure that they avoid making four common mistakes.

Premature exits When equity markets decline, investors exit SIPs, fearing future losses. They actually end up far worse compared to those who stay invested for 8-10 years or more, who actually gain immensely.

Unjustified euphoria When equity markets are going up sharply, typically, investors either exit from SIPs or move to lower risk investments like fixed deposits (FDs). This limits the long term growth prospects of their money since equity fund investment typically need time to deliver high returns.

Incorrect use of performance benchmarks People often discontinue SIPs comparing performance with benchmarks and peer funds over very short periods of time be it monthly, quarterly or yearly basis. The comparisons need to be over one-, three- and five-year periods.

Comparing SIP and lump sum returns Many investors incorrectly compare SIP returns with returns of lump sum investments. SIP investments are made over a period of time and get different time periods to grow. This needs to be taken into account when assessment of performance is being made.