Common Mutual Fund SIP Mistakes That Keep You From Making Big Money
Investing in SIP mutual funds is increasingly accepted by investors, especially among young people who are at the start of their careers. The reason for this growing acceptance of the SIP mutual fund is its characteristic of developing a huge amount at maturity with a small monthly investment in the long term. However, due to the lack of knowledge of the products, sometimes an investor makes mistakes that prevent them from making a lot of money.
Here we list common mutual fund SIP mistakes to avoid:
1]NAV vs past performance: It has been found that a mutual fund investor believes that the SIP of mutual funds with a lower net asset value (net asset value) has the probability of yielding higher returns. But, in reality, you have to look at the past performance of the mutual fund instead of the net asset value. The net asset value of a mutual fund can be low or high for many reasons, but the performance of a mutual fund can be good or bad for one reason only: a good or a bad asset manager. So, keep in mind that its asset manager counts more than the net asset value of the mutual fund.
2]Dividend vs growth plan: According to tax and investment experts, growth plans are better than dividend plans. They believe that dividends are paid out of the investor’s net assets under management. Thus, opting for a dividend plan rather than a growth plan reduces the income of a long-term investor because the investor misses an opportunity to accumulate the benefits or the tax on tax.
3]Bull market versus bear market: It has been found that investors in SIP mutual funds stop their monthly SIP payment when the market is bearish. By doing this, they are missing out on the opportunity to get more NAV from the average cost in rupees. In fact, in a bear market one should consider a reload opportunity with a lump sum amount available to the investor at that time. Investors in SIP mutual funds should understand that the cost of investing is low when the market is bearish and the low cost of investing leads to higher chances of return. So, in a bull market, the investment cost is high, which reduces the chances of return.
4]Selection of funds: When selecting a plan for SIP mutual funds, it is advisable for an investor to look at the performance of mutual funds for the past 5 to 10 years instead of recent performance over one to two years. They should also check the performance of the Reference Shares during this period. When selecting a plan, it is advisable to look at the long term performance of mutual funds.
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