First, let’s start by understanding meaning of SIP Mutual Fund? This is a systematic investment plan (SIP) where investors make regular, equal payments into a mutual fund and it also allows investors to save regularly with a smaller amount of money while benefiting from the long-term advantages of rupee cost averaging.
Systematic Investment Plans (SIPs) is one of the easiest way to start your investment journey with an amount as low as Rs.500. In addition to this, keeping a few strategies in mind will help to achieve your goals quicker!
Is it likely that if you follow these strategies for starting a SIP mutual fund, it will help achieving your goals? Yes, it’s that easy provided this is done religiously.
Why should you start a SIP Mutual fund investment?
Firstly, this gives you a purpose for the investment plan. It gives you an estimate of your savings in order to achieve your specific goals. Secondly, it adds an emotional value for example: planning for a holiday, or buying a house. Investments made without any purpose or direction may not help you achieve your goals. This also becomes a futile exercise. Ensure you follow this step before investing in an SIP. Use an SIP Mutual fund calculator that determines your goals better
Think long term and not short term
SIP helps you navigate through market uncertainty and hence it is essential to keep a long-term investment horizon to average out the cost of your investments and give you the benefit of compounding.
Use Asset allocation strategy to reduce risk
It is not uncommon to see investors chase performance. This also comes with high risk and return factor that you need to understand clearly. While equity funds may have generated the progressive returns over the last few years, but one must not ignore the risks associated. Therefore, diversification in each asset class judiciously is essential i.e. between debt, equity and gold. So, your equity SIP portfolio should have a right mix of large and mid- caps, along with growth and value style
Choose funds that have stringent rating parameters
Past performance is not an indicator of future returns. This is an important statement as it justifies that there have been top performing schemes in the past that do not give such high returns anymore. Thus it is advised that investors should not choose an SIP mutual fund merely on the top performance. Therefore, you need to check not only quantitative but qualitative factors such as; are the funds well managed, is there a process driven approach and whether they stay true to its label, among others.