One of the most effective ways to build wealth in the long run is to invest through an equity mutual fund SIP. To ensure that your SIP works hard for you, there are some basics you need to be aware of. The name “SIP” itself implies that one can gain much more if small payments are made over time. However, people tend to make mistakes when it comes to mutual fund investments. Here is a list of 10 common SIP mistakes, made by investors, which should be avoided in order to maximize returns.

The beauty of a SIP is that the earlier you start the better it is. If you start early, your principal earns more returns and your returns earn even more returns. This is known as the power of compounding. It is time that really works in your favor over the longer period of time.

It is best not to invest in sector funds and thematic funds when you want to take on the risk of equities over the long term. SIPs are designed to take on the risk of equities over the long run. Don’t be too conservative and choose debt funds or index funds. Instead, stick to diversified equity funds because they are cyclical and should be avoided. Don’t opt for debt or index funds. Instead, choose equity funds.

Instead of choosing dividend plans, opt for a growth plan where the fund returns are automatically reinvested. You get the dividends, but you use up your dividends for your consumption needs. You can also monitor the progress of your SIP using growth plans when you tie it to a long term goal.

It is crucial to maintain discipline in your SIP if you want it to succeed. Once you start it, you need to keep it going. You will not be able to reach your goals if you start your SIP and leave it half way through. No matter what your financial constraints are, make sure that your SIP is a necessary discipline and will never be disrupted.

The mistake that investors make is to get carried away by the name and pedigree of mutual funds and foreign ownership. Despite consistent non-performance, they remain with the same fund manager. Feel free to choose the AMC that best suits your purpose if you find it inconsistent in performance. Your commitment is to the SIP and not the AMC. If you find it inconsistent in performance, just think with your feet.

In our previous articles, we stated that sector funds and thematic funds are not suitable for SIP long term investments. They are cyclical and make your portfolio too concentrated. Stick to diversified equity funds for the benefit of alpha without the risk of concentration.

It’s all about passive investing and using time to your advantage. Don’t try to time the market too aggressively. It is not necessary to take actions, such as increasing the SIP amount when the markets are down or reducing the SIP amount when they are up. You just need to remain passive and disciplined.

As the first step, you need to invest in a SIP. The SIP needs to be monitored against your long-term goals to see if they are aligned. Check your SIP to see if the returns and risks are in line with what you chose. Keep an eye out for constant management changes, frequent policy changes, and regulatory lapses.

SIP performance is often evaluated over a period of 1-2 years. Ideally, keep a time frame of 10-12 years at the bare minimum, so that your SIP will even out the market cycles and produce wealth. You can achieve the best results from SIPs if you consider long-term investments for 20-25 years. Above all, be disciplined.