Systematic Investment Plans (SIPs) are a disciplined way to invest in mutual funds. They are widely used for long-term wealth creation. By setting clear financial goals and selecting schemes that match their risk tolerance, investors can better manage market fluctuations. Additionally, staying updated on market trends allows investors to optimise the growth of their corpus through SIPs.
The increasing craze of SIPs was recently visible in April 2024 when SIP inflows in India reached an all-time high of Rs. 20,371.47 crore. It surpassed the previous month's Rs. 19,270.96 crore. This increase in SIP contributions also boosted the mutual fund industry's Net Asset Under Management (AUM) to Rs. 57.26 lakh crore in April 2024. This was a substantial increase from Rs. 53.40 lakh crore in March 2024.
Also, in April 2024, there were 63.65 lakh new registrations for SIPs. This significant number indicates that more and more investors are showing interest in investing in mutual funds through SIPs.
What are SIPs?
As the name suggests, an SIP involves investing a fixed sum of money at regular intervals (usually monthly, though you could invest quarterly too). Then, a money market expert takes this money and buys units of a scheme, usually a mutual fund, at a pre-determined frequency.
SIPs allow you to invest in securities safely and securely. You don’t have to worry about selecting the right securities as your financial advisor will do so on your behalf. Also, since you can invest flexibly, this option is suited to all kinds of investors. It doesn’t matter if you’re an experienced investor or are investing for the first time.
Sip investment tips
A systematic investment plan is a smart way to invest in mutual funds. Through SIPs, investors regularly commit a fixed sum of money, either monthly or quarterly. This method spreads out investment costs over time and reduces the impact of market fluctuations. Also, it inculcates the habit of savings and leads to long-term wealth accumulation.
To build a sizeable corpus through SIPs, let’s check out some proven tips to maximise your returns:
1. Start early
By starting your SIP early, you can benefit from the power of compounding, where your earnings generate additional earnings over time. Also, investing early, even with small amounts, gives your money more time to grow exponentially. This is why financial experts recommend beginning your SIP journey in your 20s or early 30s. As a general rule, the longer your money remains invested, the greater are the chances for substantial wealth accumulation.
2. Invest regularly
It must be noted that discipline is essential for achieving financial goals through SIP. Hence, you must commit to investing a fixed amount regularly, be it monthly or quarterly. This consistency allows you to benefit from rupee-cost averaging, where you purchase more units when prices are low and fewer units when prices are high.
Regular investing also helps you avoid making impulsive decisions based on short-term market changes. This way, you can better focus on long-term growth.
3. Choose the right fund
To maximise returns, selecting the right mutual fund is important. Hence, always choose a fund that aligns with your investment goals, risk tolerance, and investment horizon. Platforms like the Bajaj Finserv Platform offer 1,000+ mutual fund schemes from India’s top fund houses. You can easily research and choose a suitable fund based on your financial objectives.
4. Diversify your portfolio
Diversification reduces risk. Its primary purpose is to maintain overall portfolio stability by offsetting potential losses in one area with gains in another. Also, diversification optimises returns by spreading investments across different asset classes, such as equity, debt, and other assets like gold or real estate.
Moreover, by holding a mix of assets, you can easily balance risk and reward. This makes your portfolio more resilient to market fluctuations.
5. Increase SIP amounts over time
As a thumb rule, when your income grows, increase your SIP contributions. This will accelerate your wealth creation. Also, by gradually raising your SIP amounts, you can take advantage of higher earnings and significantly boost your wealth accumulation over time.
6. Monitor your portfolio
By regularly monitoring how your investments are performing, you can identify if they are meeting your expectations and contributing to your financial objectives. If they are not, you can make changes, such as reallocating funds or choosing different investments.
This way, you can better align your investments with your financial goals and ensure your investment strategy remains effective.
7. Avoid timing the market
For those unaware, “timing the market” refers to a risky strategy where you predict market movements to buy low and sell high. Ideally, investors should avoid this strategy and instead focus on consistent investing through SIPs.
Such regular investments help you benefit from rupee-cost averaging and avoid the negative effects of market timing. That’s because by committing to a disciplined approach, you reduce the risk of making poor decisions based on short-term market volatility.
8. Keep your investment horizon in mind
Your investment horizon is the time you plan to hold your investments. Be aware that SIPs are designed for long-term goals. Hence, stay invested for extended periods so that you can ride out market volatility and benefit from compounding.
Also, to maximise potential returns, you must align your investments with long-term objectives like retirement planning or wealth accumulation. It is vital to recognise that the longer your investment horizon, the better your chances of achieving significant financial growth.
9. Use an SIP return calculator
An SIP return calculator estimates how your investments may grow over time. Usually, the calculations are made based on your contributions, chosen funds, and expected rate of return. By using this tool, you can set realistic financial goals and align your SIP strategy accordingly.
However, remember that these calculations are based on historical performance and do not guarantee actual returns.
10. Expense ratio and commission
When investing in mutual funds, consider the expense ratio and commissions. For the uninitiated, the expense ratio varies between mutual fund schemes and represents the percentage of your investment used to cover fund expenses.
A higher expense ratio means more of your returns are consumed by fees. Additionally, brokers or platforms also charge commissions. Hence, while investing, be mindful of these costs. Always choose the scheme where you incur lower fees and commissions as it ensures that more of your money is working towards growing your wealth.
