Step-by-step guide to get most out of your SIP investment
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Systematic Investment Plan (SIP) is a significant tool to grow your money over a period of time. Not only it is affordable with investments starting from as low as Rs 500, but also offer higher returns over the long-term. Combined with the diversification benefits of mutual funds, SIPs keep risks at bay by spreading investments over a long period to average out the purchase price of mutual fund. But it is possible that you won't be able to maximise the returns on mutual fund investment due to some reasons like not reviewing the investments on time, staying on the fixed sum of investment on a monthly basis, etc. So, here are some of the tips that you can use to make the most of your SIP investment.
Do SIPs in line with investment goals
You must have a clear set of investment goals while you are putting your money in mutual fund SIPs. You may want to save money for the higher studies and marriage of your child, or for the post-retirement life. Taking such objectives into consideration, you can figure out the progress of your investment periodically.While doing so, you could come at the figure that you need to save each month. For example-If you require a sum of about Rs 15 lacs in 20 years for the marriage of your daughter, then an SIP of Rs 5,000-10,000 per month will serve your purpose.
Invest throughout the whole term
If you are clear about your investment goals, then the market downturn should not bother you. It is being observed that people forego SIP in the falling market scenario and get deprived from gaining the actual benefits of SIP investments. If you stay invested in SIP throughout the entire term, then you can take advantage of lower prices during the downturn of the market and thus able to average out the cost of purchase over a period of time. So, if you exit from the falling market, you stand to lose out on the opportunity to buy SIP units at lesser price and then get higher returns when the market starts going up.
Raise your SIP amount each year
It's a fact that you can continue investing a fixed sum monthly towards SIP. However, you should raise the investment amount with the rise in your income to give a booster shot to your saving exercise. With an increase in investment, you can set bigger goals.
Multiple SIPs and their proper allocation
With the rise in income levels, you could open multiple SIPs to enhance your savings and the returns latter on. Divide the SIPs properly and set different dates for their payment. By doing so, you will have some funds available in your savings account.
Option of STP and SWP
You can choose the option of Systematic Transfer Plan (STP) to transfer your money from the volatile asset class to the stable one. In order to achieve your goal, you can also use Systematic Withdrawal Plan (SWP) to withdraw the money at regular intervals over a period of time and thus ensure the protection of your gains
Time your SIP review to perfection
If your SIP has achieved the goal that you set with the instrument at the start of the investment, then you better withdraw the fund. If you have managed to achieve the goal before the maturity period, you can transfer the money, which were invested in SIP, to more stable sources of income. It won't be a good move to expose your investments to market risks for the remaining period left for the SIP. But if you anticipate that the corpus is not likely to be where you wanted at maturity, you then better off extend the tenure of your SIP.