If investing and growing your hard-earned savings is one of your primary wealth maximisation goals, then this post is just for you. While many people are okay with bearing some risks by investing in equity, some are risk-averse and don’t wish to go into the market with a big chunk of capital. Instead, they look for options that help them add up their savings bit by bit. Are you familiar with Systematic Investment Plans (SIPs) in the share market and the best mutual funds for SIP? If not, we have got you covered. Read on below to understand all there is to know about SIPs.
SIP is a popular investment choice in the share market where investors regularly deposit a fixed amount at regular intervals, such as weekly, monthly, or quarterly. SIP is a disciplined investment approach that enables investors to invest in the share market in a cost-effective and convenient manner. SIP investment can be started with a minimum investment amount as low as Rs 500, making it an accessible investment option for investors with limited financial resources.
This strategy allows investors to benefit from the power of compounding and can help them achieve long-term financial goals. Unlike lump sum investments, SIP investments allow investors to invest small amounts at regular intervals, which can help mitigate the impact of market volatility and reduce the overall investment risk.
- Rupee Cost Averaging: Under this technique, investors invest a fixed amount at regular intervals, irrespective of the market conditions. This means that when the market is low, investors can buy more units of shares, and when the market is high, they can buy fewer units. Over time, this averaging technique can help investors to reduce the impact of market volatility on their investment and maximise returns.
- Disciplined Investing Approach: With SIP investment, investors can set a target for themselves and work towards achieving it, without getting swayed by market fluctuations. By investing regularly, investors can develop a habit of saving and investing, which can help in achieving their financial goals.
- Mitigating Market Volatility: The share market is volatile, and market fluctuations can have a significant impact on investors’ investments. However, SIP investment can help to mitigate the impact of market volatility on investors’ investments. Since investors invest a fixed amount at regular intervals, they can benefit from the averaging technique, which can help to reduce the impact of market volatility.
- Long-Term Wealth Creation: Since SIP investment is a disciplined approach to investing, it can help investors to achieve their long-term financial goals, such as retirement planning, children’s education, or buying a home. With SIP investment, investors can benefit from the power of compounding, which can help their investments to grow significantly over time.
- Flexibility and Convenience: Investors can start investing with a small amount and increase their investment amount as their financial resources grow. Additionally, investors can choose the frequency and the amount of investment at their convenience. SIP investment can be started, stopped, or paused at any time.
- Selecting a Reliable Mutual Fund (MF): Conduct thorough research and evaluate different MFs based on their performance, track record, and reputation in the market. Consider factors such as fund size, investment philosophy, and consistency in delivering returns. Look for funds that align with your investment goals and risk appetite.
- Assessing Risk Appetite and Investment Goals: Determine whether you are a conservative, moderate, or aggressive investor. Assess your financial goals, whether they are short-term or long-term, and the time horizon for achieving those goals. This assessment will help you choose MFs that are in line with your risk profile and investment objectives.
- Determining the Investment Amount and Frequency: The investment amount can vary depending on your affordability and the fund’s minimum investment requirement. The frequency can be monthly, quarterly, or any other interval that works for you. Ensure that the investment amount is consistent and fits well within your budget.
- Completing the Necessary Documentation: This process typically includes Know Your Customer (KYC) verification, providing identity proof, address proof, and PAN card details. Visit the mutual fund company’s website or a registered intermediary to complete the documentation process.
- Setting up the SIP Investment: Provide the required details, such as the investment amount, frequency, and duration, to the MF company or the intermediary. You can choose to set up the SIP through online platforms, mobile applications, or physical forms. Provide the necessary bank account details for auto-debit of the SIP investment amount.
- Fund Performance and Track Record: Look at the fund’s historical returns over different periods and compare them to the benchmark index and peer funds. Analyse the consistency of returns and evaluate how the fund has performed in different market conditions. However, past performance is not a guarantee of future results, so it should be considered along with other factors.
- Expense Ratio and Fund Charges: The ratio represents the annual expenses incurred by the MF, including management fees, administrative costs, and other operational expenses. Compare the expense ratios of different funds and choose those with lower expense ratios, as it directly impacts the returns generated by the fund.
- Fund Manager’s Expertise and Strategy: Evaluate the experience, qualifications, and track record of the fund manager. Understand the investment strategy followed by the fund manager and whether it aligns with your investment objectives. A skilled and experienced fund manager can make a positive difference in the fund’s performance.
- Asset Allocation and Diversification: Diversification of investments ensures that the fund’s investments are spread across various sectors, industries, and securities. A well-diversified portfolio helps to manage risk and potentially enhance returns.
- Regular Review of Fund Performance: Monitor the fund’s performance against its benchmark index and track its progress toward your investment goals. Assess whether the fund is consistently delivering returns in line with your expectations. If a fund consistently underperforms or fails to meet your investment objectives, it may be worth considering a switch to a better-performing alternative.
- Making Adjustments Based on Financial Goals: If you have achieved a particular goal, you may choose to redirect the SIP amount towards a new objective or increase the investment amount to accelerate progress. Similarly, if your financial circumstances change, you may need to modify your SIP investments accordingly. Regularly reassess your goals and make necessary adjustments to keep your investments aligned with your financial aspirations.
- Rebalancing the Portfolio if Required: Over time, the performance of different asset classes may vary, leading to a deviation from your target allocation. Rebalancing helps you restore the original asset allocation and manage risk effectively. Consider rebalancing your portfolio periodically, such as annually or biennially, to ensure it remains in line with your risk tolerance and investment strategy.
- Staying Updated with Market Trends and News: Keep yourself informed about market trends, economic indicators, and company-specific news that may impact the performance of your SIP investments. Track important developments in the sectors and industries in which your funds are invested.
Once you do your research regarding which MFs fit your SIP strategy best, it is as easy as opening an online investment account in an app or using your bank to create a SIP portfolio for yourself. So what are you waiting for? Contact your bank for more information today!