Source/Contribution by : NJ Publications
Mutual Funds SIP, as we all know is an investing tool which imparts discipline and convenience to the investing process. It is a systematized method of helping investors achieve their goals and smoothing out their financial life. It stands by you in good and bad times. SIP apart from being a disciplined approach to investment, also helps in generating superior returns for the investor by the virtue of Rupee Cost Averaging.
This article concentrates on how investors can leverage the fundamental principles of successful investing to get the maximum out of their SIPs. Deriving maximum benefit out of your SIP investment can be achieved through maximizing Returns and minimizing Risk. Following are some tips which can help you make the most out of your SIPs.
Follow your ideal Asset allocation: The ideal ratio between equity, debt, gold and real estate is not restricted to lump sum or physical investments only. SIP investments too need to follow the protocol. Your financial advisor has a major role to play here, he/she will ensure that your portfolio confirms to the optimum at all times. So if your ideal Portfolio is 50 Debt and 50 Equity, your investments through SIP need to follow this allocation and any discrepancy as a result of valuation gains or losses need to be adjusted to arrive at the optimum.
Follow the Rules: No doubt investing in Mutual Funds through SIP helps in controlling risks because of Rupee Cost Averaging, the buying cost is spread over a period of time, so the risk of buying at peak is eliminated. Yet you need to follow the basic rules of investing even though you are investing through the SIP mode.
- Link the SIP to your goals, it'll give you clarity, will help you in assessing how close or far you are from your goal and if you need to take any action with respect to the SIP amount.
- If the goal is too near, do not go for equity SIPs, if the horizon is longer, you can even go for riskier options like mid caps or small caps considering your risk appetite.
- Similarly, SIP investments should be in an assortment of varied underlying asset classes with the view to diversify risk, in confirmation with your ideal portfolio as discussed above.
Review periodically and Increase your SIP: You carve out your SIPs from your income to help you achieve your goals. Now your income is likely to increase each year and with this increase in income, the quantity and quality of your goals will also change. Investing through SIP does not mean you are sorted once and for all. It does make your life easy but doesn't terminate your job, you have to regularly look back and forth and amend your investment as the time demands. Hence, your SIP's should also increase with an increase in your income or with an elevation in your goals. Sit with your advisor and ask him to review your goals and help you decide the right SIP amount for you. The review should be done periodically, so that you don't lose track. Increasing your SIP is not a hectic task, but it is very important and should not be ignored.
Scatter your SIP dates: If you have multiple SIP's running, you should distribute the payments to different dates over a month. You should schedule them in a way that there is a reasonable gap between two SIP installments, this will ensure that you have sufficient liquidity throughout the month since all the money is not going out in one go. It will also help you in accelerating the benefit of Rupee Cost Averaging.
Exit from the underperformers, enter the performers: Ask your advisor to review your SIP for not just your goals and asset allocation but also for the investment's quality and future prospects. There is a need to check regularly how your SIP investments are faring over time, and how good does the future looks. If any of your SIPs isn't in the right scheme, you must exit that underperformer and enter a performer within the same category of funds to remain compliant to your ideal asset allocation.
So the above paragraphs are inscribed with a view to help you in exploiting your SIPs the maximum to your advantage. SIP's are like a financial blueprint of the investor's life, you choose the direction of your life and the above steps will ensure that the ride is smooth.