Systematic Investment Plans (SIPs) provide an excellent investment opportunity to build a solid mutual fund portfolio in a time-bound and organised manner. By contributing a small sum each month, they assist you in meeting your financial goals across different timelines.
SIPs are the most straightforward option for first-time investors because they let you earn good returns at lower investment risk. Here are five things SIP investors should keep in mind to make good returns:
- Know your investment goals
To begin your investment, you must have both short-term and long-term objectives. It’s important to identify the aim you hope to achieve with this investment before you start an SIP. This easy step might help you choose the amount and length of your SIP.
An SIP works well for long-term investments. It is because the power of compounding helps build wealth over time and allows you to meet goals such as buying a home, building a retirement corpus, etc., in the desired timeline.
- Hedge against inflation
The golden rule of investing is to account for inflation while making decisions. The current and projected inflation rates must be considered when selecting an SIP . That’s because even though you might be investing today with a specific goal amount in mind, to meet that same goal you may need a higher amount down the line.
Additionally, your future objectives could alter and necessitate more money to cover them. Hence, it’s essential to not only account for inflation but also save for an amount slightly higher than what you think you need.
- Portfolio diversification
Be careful to diversify your finances along with your planning. If you invest heavily in stocks, you can experience capital losses if prices fall. Similarly, investing recklessly in debt funds can restrict your ability to generate returns. Choose a balanced portfolio that includes both debt and stocks.
Diversification helps reduce the risks relating to one asset class, such as market volatility when it comes to equity. Spreading your investments among several asset classes, mutual fund schemes, etc., is necessary for diversification.
- Start with small investments
You can begin investing with small sums; SIP benefits can be attained with as little as Rs 500, or Rs. 100 in some cases. For maximum outcome, make an annual top-up and keep raising the amount. This will be simple to handle, won’t weigh you down, and will help you reach your goals more quickly.
Starting your SIP investment early ensures your money has more time to grow through the power of compounding. And since the minimum required SIP amount is low, you don’t have to wait to save a lump sum to benefit from mutual fund investments.
- Track your investments
Investing and maintaining an investment is insufficient. Monitoring the status of your investments is necessary. Your assets may not perform as expected in the short term or may end up generating negative returns, but if you keep track of them over a year, a decade, or longer, you will see how they are performing. Also, make sure to verify that your investment portfolio is being credited with regular SIP investments.
Final words
One of the most satisfying steps of your investment experience may be starting an SIP. You have plenty of freedom and don’t need a lot of time or effort to manage your investment. The best part about SIPs is that they allow you to save huge amounts of money, slowly over time, for important goals of your different life phases.
