SIP Planning: Many investors start investing in mutual funds with a sensible plan. He starts an SIP, then takes another SIP to save tax, then adds another SIP after reading about small-cap funds and takes another fund focusing on technology or mid-cap because their returns look good online.

After a few years, they suddenly realize that they are investing in eight, ten or sometimes fifteen mutual funds every month without fully understanding why and surprisingly, often many of those funds contain the same stocks. This is where excessive diversification becomes a big problem.

In fact, for those who are investing around Rs 25,000 every month through SIP, financial planners say that the aim should not be just to deposit the maximum amount. The objective should be to create a portfolio that has complete diversification to reduce risk, and is also focused and easy to manage. Because beyond a certain point, adding more schemes does not necessarily improve returns or significantly reduce risk. Sometimes this just creates confusion.

Too many funds weakens the quality of the portfolio.

In general, an interesting problem with too much diversification (investing in different places) is that it can dilute the impact of well-performing investments. If an investor divides Rs 25,000 among 10 or 12 funds, the amount invested in each fund becomes very less. Even if a single scheme performs very well, its contribution to the overall portfolio may be limited because the money is dispersed across multiple locations. Also, it becomes very difficult to review the performance.

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Secondly, many investors eventually give up checking whether different funds are still in line with their goals, because it becomes very difficult to manage the portfolio properly. The strange thing is that this often leads to emotional investment later on. Instead of maintaining a planned approach, people start starting or stopping SIPs based on short-term performance.

Diversification and over-diversification different

It is important to understand that diversification is important because it reduces reliance on any one sector, stock category or investment style. But over-diversification occurs when making more investments does not provide any significant benefit in risk management and simply creates a situation of overlap (duplication). For example, it is like carrying several umbrellas in the rain. After a while, most umbrellas don’t provide real protection. Investing in mutual funds is also something similar. Beyond a certain point, having more schemes does not automatically make a portfolio safer or better.

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SIP Mutual Fund News: Nowadays everyone does SIP for their bright future. This formula always seems simple. Start a mutual fund SIP, stay invested for 10 years, ignore market fluctuations, and the wealth will grow automatically. Simply put, ‘SIP is the future’, financial experts fully believe in it. Social media calculators make the money process automatic.

A person starts a monthly SIP of Rs 5,000 in different equity mutual funds. After a few years, the stock market crashes. The value of the portfolio falls. There is an atmosphere of panic in the news. Suddenly, continuing with SIPs seems absurd. But the investor still continues investing.

Investing does not guarantee becoming rich!

More mutual fund units were purchased when prices were low, leading to better long-term results when the market eventually recovered. However, experts warn against a big misunderstanding. 10 years can improve your chances. However, it does not guarantee becoming rich.

One thing to note is that, if you think that by investing through SIP for 10 years, profits are automatically assured, then experts say that this idea needs to be brought face to face with reality.

What did the expert say?

Adhil Shetty, CEO, BankBazaar, says, ‘Staying invested in an equity SIP for 10 years significantly increases the chances of getting positive returns, but it should not be considered a guarantee of profits.’ Also, equity markets are linked to fluctuations, global events and investor sentiments.

According to Shetty, what works in favor of SIP investors is long-term investment and rupee cost averaging. By making a similar investment, you buy more shares when the market falls and less when it rises. This naturally averages out your purchase costs over time.

Inflation playing important role in SIP

Even if your SIP amount keeps increasing, inflation gradually reduces purchasing power. In such a situation, if the prices of essential commodities continue to rise, then even a portfolio giving 10-12% returns will not look extraordinary. This is the reason why. Experts recommend increasing SIP contributions gradually with salary increases, regularly reviewing the portfolio and maintaining low risk. According to Kumar Bineet, the success of SIP depends not only on timing but also on many factors like asset allocation, consistency, expense ratio, valuation and investor discipline.

Patience will be beneficial, nervousness will cause harm

Different experts have different opinions regarding SIP. However, one thing became clear. 10 year SIP is not a shortcut to becoming rich overnight. This actually gives market fluctuations and interest a better chance to do their job. Some investors can create substantial wealth. At the same time, some investors may get disappointed if they choose a bad fund, stop investing midway or lose patience in difficult market conditions.