What Are SIPs?
SIPs are Systematic Investment plans. An SIP is a tool via which investors can invest in mutual funds. The provisions allow them to invest small amounts of money over a period of time, instead of a lump sum.
Let’s look at these three points that can improve your SIP investment
Most investors opt for systematic investment plans in order to save taxes. A flourishing condition of finance has also been stated as a reason to invest via SIP. It is important to chart a strategy and work towards a goal before starting a SIP investment.
Most investments have redeemed merely the amount invested because of the lack of a pre-set goal.
SET A GOAL:
The profit from a SIP that is started for the sake of it is usually gone without benefits. Setting a goal, like the following can however, have a massive positive impact on your finances:
- Higher Education of your children
- A Retirement plan
- A Housing investment plan at 50
- Investment for a car or any other asset at a later age
Underlining needs of starting one can be highly beneficial to the outcome. It allows you to accumulate investments over a period of time, thus enabling you to compound funds for a prospective investment in the future.
2) How Do You Choose the Right Investments for Your SIP?
It is important to let your investments bear positive fruit. Therefore, you must choose a scheme that will allow you to redeem the maximum benefits. A diversified equity scheme has been the most ideal scheme opted by a majority of the mutual funds investing experts. The scheme has outperformed the average benchmark for the past 3-10 years consistently.
Also, keep note the following:
- Scrutinize the market standing of the Asset Management Company and ensure that it is top-ranked
- Ensure that the fund manager is efficient at the task of managing funds and has a spotless reputation
- Asset allocation must be done – choose the asset class which is most suitable for your scheme
- You must decide on your bank extra carefully and also choose the most suited date to start the SIP
KNOW YOUR GOAL:
It is absolutely necessary to be aware of the monetary value of your goal. Carryout a thorough research of the present money value of the goal you set. Also, know the changes that will occur and the cost of future investment on the value.
3) How Do You Manage Your SIP?
SIP management should not be overlooked. Investors often tend to neglect management because it is a long-term plan. However, you must regularly update yourself with the development of the scheme. Scrutinize whether the present tenet of investments coincides with your hypothesis of investment.
It is preferable to update yourself on an annual basis. If you encounter any alteration in the SIP, you can then plan out an alternate investment style to suit you.
WORK ON YOUR GOAL
Most investors start a SIP with the mindset that it is long-term, and often lose track of it. This causes them improper investments and often a redemption amount not worth the effort. Therefore, after starting a SIP work on it regularly to ensure that you are reaping the maximum benefits. Conduct thorough searches and know the right amount for your SIP.
The returns of a SIP can vary from that of a point-to-point asset class. They’re an outcome of the return curve. Equity fund returns can show variations to underlying asset classes whereas; a debt fund SIP could be similar.
It is important to know these crucial facts prior to investing via a systematic investment scheme.
Once you have set your mind on investing via SIP, you will reap benefits if you know your facts and keep yourself informed. Here are some other points to know before you invest through a SIP:
Keep your SIP tenor less than the horizon of your goal
The risk-return profile is often reduced in the initial phases of the investment with regular installments. The risk-return may be significantly higher after the 50% threshold of the investment. Therefore, keep the investment horizon for the SIP shorter than that for your goal.
Don’t let market corrections stop you from further installments
According to financial behavioral surveys, investors stop further investments when the market corrects. You must not deter and continue to invest in your SIP so that you achieve the goal you’ve set.
Know the risk involved, and invest in a scheme accordingly
Planning is crucial when you start to invest through SIP. Be ready to face the risk involved and to steer clear of it. Plan dates and tenors so that you have minimum risks of market changes, increments etc.
A SIP will help you carry out disciplined investments
SIPs are a regular mode of investment and will help you discipline the businessman in you.
Are you ready to invest in a SIP today?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.