STOP This SIP Mistake NOW! Rs 5000 Investment Secret Revealed By Expert Ritesh Sabharwal

Many new investors view a Rs 5,000 monthly Systematic Investment Plan (SIP) as their first step towards building wealth. However, a common pitfall arises from the pursuit of “diversification,” which unintentionally hinders progress. Splitting this modest sum across four or five mutual funds, while seemingly a good strategy, often results in confusion, panic, and significantly poorer long-term outcomes.

The Trap of Over-Diversification

A typical pattern for beginners is to divide Rs 5,000 into Rs 1,000 each across large-cap, mid-cap, small-cap, flexi-cap, and even sector-specific funds. The intention is to balance risk and maximize gains. Yet, according to certified financial planner Ritesh Sabharwal, this is merely “over-diversification dressed up as smart investing.”

Expert's Simple Strategy

Sabharwal illustrates this with two scenarios. In Strategy A, an investor invests the entire Rs 5,000 in a single flexi-cap fund. Over ten years, this could grow to Rs 11.65 lakh with a 12.2% annual return. In Strategy B, the same amount is split into five different funds. Despite the diversification, the 10-year return might only reach Rs 11.68 lakh, a mere Rs 3,000 difference, but with five times the effort in tracking and decision-making.

Why Simplicity Wins

This added complexity is detrimental. Sabharwal notes it leads to three times higher dropout rates and destroys long-term wealth. Beginners face mental overload analyzing multiple funds, leading to doubts, switching, or halting SIPs based on short-term performance differences. Tracking five statements and portfolios becomes chaotic, often causing investors to lose track or exit prematurely when one fund underperforms.

A real-world example shows a woman investing Rs 5,000 monthly in one flexi-cap fund for three years, building a corpus of Rs 2.05 lakh. Another investor, splitting the same amount into five SIPs, gets confused by inconsistent performance and discontinues all SIPs by year three, leaving a corpus of only Rs 72,000.

When to Diversify

Sabharwal urges newcomers to start with clarity and focus. “For small investors starting out, simplicity beats sophistication every time,” he states. His advice is to invest the entire Rs 5,000 into one flexi-cap or index fund for the first two years to build discipline and understand market cycles. Diversification into a second fund should only be considered after the corpus crosses Rs 2 lakh and confidence builds. Multiple SIPs become sensible only when monthly investments reach Rs 15,000–Rs 25,000, coupled with sufficient knowledge and time for management.

Impact

This advice aims to prevent common, costly mistakes made by new investors. By promoting simplicity and discipline, individuals can avoid significant wealth erosion due to complexity and premature exits, leading to more robust long-term wealth creation. It empowers beginners to stay invested and achieve their financial goals.
Impact rating: 7

Difficult Terms Explained

• SIP (Systematic Investment Plan): A method of investing a fixed amount of money in mutual funds at regular intervals, typically monthly.
• Diversification: Spreading investments across different asset classes or types of securities to reduce risk.
• Over-diversification: Holding too many investments, which can dilute returns, increase complexity, and lead to confusion.
• Flexi-cap fund: A type of equity mutual fund that can invest in the equity of companies across large-cap, mid-cap, and small-cap segments without any restriction.
• Index fund: A type of mutual fund that passively tracks a specific market index, such as the Nifty 50 or the Sensex.
• Corpus: The total amount of money accumulated from investments.