Mutual Fund SIP: For Short Term or Long Term?

Last Updated : June 15, 2016, 5:43 a.m.

It may look very strange to you when majority of the people are advocating about Mutual Fund SIP for the long-term. If this would have been the thing, what is the need of this debate? But, before throwing some light on- Is Mutual Fund SIP for short term or long term? Let’s discuss about SIP and Mutual Fund.

SIP vs Mutual Fund:

When it comes to SIP, it would not be wrong to say that it is a method of investing in Mutual Fund.
There are two ways through which you can invest in Mutual Fund . One is the lump sum mutual fund investment, wherein you invest you money only for one time. While on the other hand the another method is SIP, commonly known as Systematic Investment Plan, wherein you invest the same proportion of money at regular intervals of time.

Know more about How to convert small investments into a big one with SIP

Timeframe for Mutual Fund SIP:

To be very honest, doing Mutual Fund SIP for the long term will only work for the investors. But, as far as practicalities are concerned, you need to commit Mutual Fund SIP for the short-term. That is why, you need to break that long-term period into 6 months or 1 year period, and commit your investment towards mutual fund for first 6 months or 1 year. However, then at the end of the said period, you should renew your mutual fund SIP for another 6 months or 1 year, if you think that it is still worth an investment for you in the long-term. You need to renew your MF investment after the predetermined period.

Contribution towards Mutual Fund SIP Changes:

• Your mutual fund SIP contribution changes with the passage of time.
• If experts are to be believed, then an individual can commit for a small amount at the beginning of his/her career. But, as the career progresses, the individual is expected to invest more in SIP due to the hike in salary.
• When you get older, the quantum of the responsibilities rise significantly higher. So, the litte amount with which you would have started investing in SIP may not be sufficient to spend on the education and marriage of your children, buying a new house, among others. So, you will require to invest more amount in your SIP to build a large corpus of money.
• So, whenever you renew your Mutual Fund SIP at the end of 6 months or 1 year, always keep an eye on your cash flow position, and depending upon that you can easily renew your Mutual Fund SIP for the increased or the same or reduced amount.

Portfolio Review and Mutual Fund SIP:

• Moreover, it also gives you a chance to review your portfolio with a financial advisor or investment planner, once in every 6 months or 1 year.
• In order to invest in Mutual Fund SIP, it is important to check that the scheme which you have chosen is performing well as compared to its peers or not? For long-term investment, it is still a worthy mutual fund? Well, for great results, you need to review these things periodically.
• The scheme may be performing exceptionally well during the time when you have chosen it for Mutual Fund SIP, but over a period time, there are possibilities that it could have derailed from its good performance. Well, this is something like the cricket players as they will also in a good form for some period of time. And, after some time, they will lose their form. So, you should periodically check that whether the fund is performing now or not.
• However, if you are the one who is committing the Mutual Fund SIP for almost 10 years, the financial advisor or investment planner will not come back to you, whenever you get in touch with him so as to review your portfolio.
• If you commit for 6 months or say 1 year, he/she will surely be coming to you when it comes to reviewing the Mutual Fund SIP. You can conveniently review with him or her during that time.

Equity Exposure in Overall and Mutual Fund SIP:

• More to the point, how much equity exposure you can give to your overall portfolio can actually change the amount of your Mutual Fund SIP in debt and equity.
• In addition to, as the age goes up, it would not be wrong to say that your ability to take the risk automatically comes down. Thus, you need to change your contribution periodically for equity mutual fund SIP.
• Well, how close or distant you are in achieving your financial goals, also decides your exposure for equity. If you have long period in order to get your financial goal, there is no denying on the fact that you can have more equity exposure with you. Whereas, if you have short period for your financial goal, no other option is left than reducing the equity exposure.
• Rebalancing the portfolio depending upon your predetermined asset allocation also gives its share in deciding your equity exposure.
• Well, at the end, all this can give its contribution in changing your Mutual Fund SIP amount in the equity funds.

Final verdict on Mutual Fund SIP:

• So, at the end it would not be wrong to say that when it comes to committing the Mutual Fund SIP for long term, it seems good on papers only. But, for the practical reasons, you need to commit for the short term, and renew it at the end of every short term, till the time you achieve all your financial goals.
• Well, in this respect, instead of committing for the mutual fund SIP, there is no denying on the fact that having the long term financial plan, and committing for the mutual fun SIP according to that plan can be very fruitful. And, this will definitely make a huge difference in order to achieve your financial goals.

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