When you should and shouldn't do an SIP (Systematic Investment Plan)

Namaste to everyone!🙏

This is my first post in this community, and I hope you'll like it and learn something from it.

If you are currently doing SIPs (Systematic Investment Plans), or are involved in the investment market in any way and are planning systematic investments, then this post is for you. When it comes to SIPs, there's a strong chance that in the last few years, you've consistently heard things like... 'SIPs are the best way to make consistent money in the market,' or quotes like 'The more you invest, the more you get,' or you've seen dozens of people in videos showing off their million-dollar portfolios, talking about compounding and consistency, and trying to attract you towards SIPs. 🌟

I myself actively invest in various funds and assets through SIPs. But it's also important for you to know that SIPs are not always the best option. I'm not against SIPs at all...
I just want to point out that, while SIPs are a great way to build wealth, you shouldn't blindly follow them just because some YouTubers who claim to be millionaires say so. Therefore, it's very important to understand when SIPs are a good idea and in which situations you should completely avoid them.

You Should Do SIPs ✔️

• When you are a beginner investor, SIPs are best for new investors because they provide a systematic, low-risk, and easy way to invest in the equity market without requiring any study of technical analysis, fundamentals, or market timing, giving new investors the freedom to grow their investments safely.

• When you have a long-term goal: For long-term goals such as children's education, buying a house, or retirement (5+ years), SIPs help accumulate wealth by leveraging the power of compounding, which requires a long-term mindset.

• When your income is stable and regular: If you are a salaried employee or your business has a consistent cash flow, it ensures continuity in your SIPs, allowing you to stay invested through market ups and downs without stress, maintaining your long-term mindset.

• When the market is volatile, you should continue your existing SIPs or even start new ones. When the market is down, your fixed investment amount buys more units (rupee/dollar cost averaging), and when it's up, it buys fewer units, thus averaging out your cost. This eliminates the temptation to "time the market" or the fear of missing out that leads to panic selling during downturns, helping you maintain discipline and stick to your long-term strategy.

You Shouldn't do SIPs ❌

• When you have a short-term mindset and you want to make "quick money," you shouldn't even consider SIPs. If you start SIPs with a short-term gains mindset, you won't be able to manage even a good, profitable fund properly, and you might even sell it at a loss due to impatience. This is because SIPs in equity mutual funds are not designed for short-term gains. Short-term gains are possible in highly volatile markets, but the potential for large profits comes with the risk of equally large losses.

• When your income is unstable and/or you have high-interest debt: If your income is irregular or you are facing financial difficulties, along with high-interest credit card or personal debt, you should focus on stabilising your income, paying off that debt, and saving an emergency fund first, before starting a new or continuing your old SIPs.

• When the market is consistently rising to higher highs almost every day, and you're investing without a clear goal, simply because everyone else is doing it, or because you think the market will continue to reach new all-time highs. Well, that's not investing, that's FOMO. Investing in an overheated market without goal clarity is like driving without Google Maps.

• When you're invested in the wrong fund: That's why it's crucial to analyse the performance of your investments periodically and to carefully analyse a fund's past performance before making new investments. Simply continuing to make SIPs (Systematic Investment Plans) in the wrong fund, completely ignoring performance with a long-term mindset, is absolutely not the right approach.

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Above, I've covered all the points I've learned during my trading/investing journey. There might be other points to consider that could make you a smarter investor. The main point is that you should choose investing or trading based on your mindset. If you are a relatively impatient person and interested in short-term gains, you shouldn't even consider SIPs (Systematic Investment Plans). However, if you are a patient person who believes in building long-term wealth, then SIPs can be a great tool for you, provided you use them wisely. 💸

This is not financial advice of any kind. As I mentioned earlier, I've shared the lessons I've learned on my own journey and the principles I use to make my investment decisions. After all, life is about continuous learning and improvement, so I might even learn something from you in the comments section.

Thank you for reading this post, and have a great day!