New Delhi: In the last few years, the number of people investing in mutual funds through Systematic Investment Plan (SIP) has increased rapidly. This trend has become common in villages along with cities, where earlier people used to traditionally invest in bank FD or post office schemes for savings or retirement.

However, some people make some common mistakes while investing in mutual funds through SIP. Due to this, they do not get as much return in the long term as they should. Let us know what is SIP, what are its benefits and what things should be kept in mind while doing SIP.

what is sip

For some time now, the stock market has been witnessing a tremendous boom. In this, most of the stocks have given great returns. But, this is not always the case. After the boom in the market, there is also a period of recession and at that time there is a huge fall in the shares. It is very difficult for a normal investor to predict such fluctuations and take investment decisions based on that. For such people, SIP is the best option.

benefits of sip

By doing SIP, you get the benefit of the magical power of compounding. This means that the extra money you get from your investment is also invested and this gives you strong returns in the long term. In SIP, you also get the benefit of averaging. For example, in SIP, the fund house buys a stock at a higher price. When the market falls, the same stock will also become cheaper. This will improve your average cost.

Remember these lessons

• Decide the amount of SIP according to your financial situation. This means that even if you face a very difficult financial situation, you will be able to continue your SIP.
• Never judge SIP on the basis of short term returns. Definitely not on the basis of few months. SIP always gives good returns in long term, so plan it accordingly.
• You should consider more than one SIP. Investing in a single fund carries higher risk. You should invest in a balanced manner across debt, equity and other asset classes.
• You must check the expense ratio while doing SIP. If the expense ratio is high, your returns may be low. Also keep in mind the entry and exit charges as well as additional charges.
• It is also important to review your SIP regularly. If your fund does not perform well compared to its competitors and the market for a long time, then you should consider changing it.