Gain Maximum from Mutual Fund SIP

Written on Thursday, December 24, 2015
By Kumar Pushpraj

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Mutual funds help you to diversify across a group of stocks, while SIPs help you to diversify over time. By spreading the investment across a long period, the investor is able to average the cost of purchase. One of the best things about SIPs is that they take emotions out of the investing decision. Here are some ways to make the most of your SIPs.

 

Link SIP to Goal

 

Any investment must have a purpose. It could be saving for your retirement, your child's marriage or even a foreign holiday. Financial planners say it is important to link SIPs to particular goals. This will not only let you monitor the progress of the investment for that goal, but also tell you how much you need to save every month. If you have to save Rs 10 lakh for the down payment of your house in two years, even an SIP of Rs 15,000- 20,000 a month won’t serve the purpose.

 

Increase the Amount Every Year

 

Although SIPs help you invest regularly, it does not mean you should keep the amount fixed over the entire tenure. As your income rises, your savings will also go up. Ideally, for a salaried person, the investment amount should increase every year in line with the increase in your income. This means you can target larger goals even though your cur- rent income does not allow big investments. The step-up SIP can have a dramatic effect on your savings.

 

Stagger SIP to Avoid Bunching

 

Fund houses have specific dates on which SIP investments are made. Whether you are planning an SIP through the same set of funds, or different funds for each goal, it would be wise to stagger each investment across different dates of the month. So if you have four active SIPs, spread them in a way that each SIP is made on a different date of the month. This allows you to retain some liquidity in your savings account since the money does not flow out at one go. The bigger advantage is that you reduce the risk of market timing because the money gets invested on different days, negating any adverse market movements in the interim.

 

Review your SIP

 

Ending an SIP is almost as important as starting it. If you have certain target in mind, end the SIP as the goal draws near. If the goal has been reached before time, shift the money out to a stable option. Exposing it to the market's vagaries for the remaining tenure will not be a wise move. On the other hand, if you have not managed to save the required amount, extend the SIP tenure.

 

 

#Mutual Fund investments are subject to market risk. Read scheme document carefully before investing. 

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