Are you making these 4 SIP mistakes that kill the compounding magic of your mutual fund investment?

Every month, your salary gets credited to your account, and one thing that we all do is put money faithfully into our SIP. Sometimes, we even tend to put the savings of the last month as a lump sum in our mutual fund (MF) systematic investment plan (SIP), trusting it to grow our wealth over time. Because in the end, who wants to retire poor?

But is your SIP really working for you? Many investors unknowingly make mistakes that erode their returns. Are you also one of them who make such mistakes?

In this article, we will look at four common SIP mistakes you need to watch out for to make sure your money truly works for you.

1. Stopping SIPs when markets fall

"Stopping SIPs when your portfolio is negative is the biggest mistake an investor makes, as that is the best time to continue the SIPs, as you are buying and averaging your investment at a lower price versus the average buying price of your investments," said Ronak Morjaria, Partner at ValueCurve Financial Services.

2. Redeeming too early

It is tempting, isn’t it? You see your SIP showing a small profit, and you think, “I will take out the money now.” But remember the first 3–5 years of a SIP are not really about big returns; they are like 'planting the seeds' phase.

Be patient, stick with your SIP, even when it doesn’t look like much is happening, and stop looking at your portfolio for some time. In a few years, you will see the magic of compounding in your portfolio. Investing apart from teaching discipline also teaches us the virtue of patience.

3. Switching funds chasing performance

We have all been there. You check your portfolio, spot a fund that’s suddenly giving higher returns, and think, “I should move my money there to get better gains.”

But always remember that every time you switch funds, you are triggering taxes, paying exit loads, and losing the compounding benefit.

Switching funds too often means your money never gets the full benefit of compounding.

Sometimes, the best thing you can do for your SIP is just leave it alone and let it grow quietly.

4. Investing in multiple schemes of the same fund house.

A lot of AMCs have an investment style and philosophy that they follow to build a portfolio. So, many times we see that most of the funds of one fund house do very well, and at times they all don't do well.

"So, advisable to understand the investment style of the fund before investing and trying not to have multiple schemes of the same fund house," said  Ronak Morjaria.

To fully succeed with SIPs, remember that discipline during market crashes and timely assessment of your strategy are just as important as the initial act of starting your investment journey.