SIP inflows reach ₹26,400 crore: Do’s and don’ts for successful wealth building

Systematic Investment Plans (SIPs) continue to maintain strong momentum as a favored investment strategy, with contributions reaching nearly ₹26,400 crore in January 2025, just shy of the record ₹26,459 crore in December 2024. This marks a slight dip of only 0.2%.

Meanwhile, equity mutual fund inflows saw a modest decline of 3.6% in January 2025, totaling ₹39,687 crore compared to ₹41,155 crore in December 2024, as per data released by the Association of Mutual Funds in India (AMFI) on February 12.

Experts emphasize that while SIPs provide a disciplined approach to wealth creation, investors must follow best practices to optimize returns.

Do’s

1. Start early: The power of compounding works best when investments are made early. The earlier you start, the higher your potential returns over time.
2. Stay consistent: Market fluctuations, economic downturns should not discourage investors from continuing their SIPs. Long-term investment smooths out short-term volatility. One should boost SIPs in downturns.
3. Choose growth plans: Opting for growth plans instead of dividend plans allows reinvestment of returns, accelerating wealth creation. Therefore, focus needs to be on plans that offer the highest possible growth and not just on dividend yields.
4. Link SIPs to goals: Having specific financial goals like home building, health, education or retirement planning helps maintain investment discipline. SIPs should be planned accordingly in systematic fashion.
5. Diversify across market caps: Investing in a mix of large, mid, and small-cap funds ensures balanced growth and risk mitigation. Focus here should not be on only the past returns of a fund. The focus instead should be on diversifying investments according to the understanding of equities and risk taking ability of an investor.

Don’ts

1. Don’t panic during market downturns: Exiting SIPs during economic downturns and recessions can result in missed opportunities for rupee-cost averaging. That is why, it is often better to boost SIPs in downturns.
2. Avoid chasing past performance: Selecting funds purely based on recent or past returns without considering long-term consistency can be risky. On the other hand it is prudent to select funds based on their decadal performances and growth.
3. Don’t be too conservative for long term SIPs: Investing only in debt or liquid funds may not yield optimal returns over extended periods. That is why based on the risk taking capacity money should be shifted to equities and equity oriented mutual funds to maximize returns.
4. Don’t invest in thematic SIPs without caution: Thematic and momentum funds can be highly volatile, making them unsuitable for long-term SIPs.
5. Avoid stopping SIPs prematurely: Staying invested for at least 10 years has historically resulted in positive returns. This fact has been shared by even giant investors like Warren Buffett and Charlie Munger in many of their Berkshire Annual General Meetings (AGMs). Therefore, avoid stopping SIPs prematurely.

Therefore, taking inspiration through the famous quote of Charlie Munger

Investors should follow such words of wisdom and take informed investing decisions based on the same after consulting their financial advisors.

(Mutual Fund investments are subject to market risks, read all scheme related documents carefully.)