3 SIP Mistakes to Avoid Before Investing in Mutual Funds

Investing in mutual funds via SIPs is an excellent way to increase your money over a period of time. But, as per finance expert Chahal Vermaa, most new investors commit expensive mistakes that will damage their returns in the long term. Before you start your SIP journey, here are three crucial SIP blunders that you need to be aware of and avoid.

1. Avoid Regular Plans: Always Choose Direct Plans

One of the most common SIP mistakes is putting money into regular plans rather than direct plans. Regular plans have a higher expense ratio, as they contain distributor commissions. Direct plans, however, allow you to invest straight with the fund house, thus paying less in fees and getting greater returns. Over the years, this slight difference in costs can amount to lakhs. While choosing a mutual fund, always see if it's a direct plan or a regular plan.

2. Don't Exit Your Fund Within One Year

Selling your mutual fund units in a year is another expensive blunder. Not only will you be charged a short-term capital gains 20% tax, but also most funds charge an exit load of 1–2% if you prematurely withdraw. That reduces your overall return and disrupts your compounding process. Always invest with a long-term mindset to avoid these unnecessary charges.

3. Opt for Index Funds Instead of Large-Cap Mutual Funds

Most investors invest in large-cap funds such as Axis Bluechip without knowing, thinking that they are better or safer. But index funds sometimes give the same or even better returns at lower costs. They simply follow the market index (like Nifty or Sensex) and are less dependent on fund manager performance. For the majority of beginners, index funds are a better and easier option.

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By avoiding these SIP errors, you will be able to safeguard your investments and create long-term wealth the right way.