Several investors invest in mutual funds via SIPs or Systematic Investment Plans. But what is SIP? A SIP lets you put in regular investments at a secure place to attain financial security in future.
You can invest in SIPs on a weekly, monthly, or yearly basis. But financial experts recommend making monthly investments in a SIP. If you struggle to find the best Systematic Investment Plan according to your financial goals, we have some valuable tips and tricks.
Choose from Equity, Debt, and Liquid Funds
SIPs are available for equity funds, debt funds, as well as liquid funds. You must choose between them according to your goal and time horizon. You should go for liquid or liquid plus funds when you have a short investment tenure.
You should go for SIPs on equity funds when you have more than 7 years of long-term goals. SIPs with long-term goals should be diversified with equity and multi-cap funds. Thematic and sectoral funds should be avoided for SIPs.
Choose Between Direct and Regular Plans
If you are wondering how to choose SIP, you must consciously decide between direct and regular plans. You will be exempted from paying the trial and distribution fees when you go for direct plans. Therefore, the total expense ratio will be lower, and the returns will be higher.
But you should also perform the cost-benefit analysis for choosing direct plans for regular plans. Some investors prefer choosing a direct plan and eventually rely on an independent advisor to navigate through their goals.
Align SIPs with Long-Term Goals
People planning their children’s education or retirement should rely on equity SIP without hesitation. SIPs are meant to perform most efficiently when they are designed around equity funds. However, you must align SIPs with a long-term goal to keep them meaningful.
Some investors tie multiple SIPs to one goal. Others have one SIP aligned with different goals. It brings discipline across your SIP investments because you are aware of their purpose.
You should remember that equity SIPs are meant for long-term goals. SIPs have the power of compounding that offers optimal results in longer timeframes. For instance, you will be disappointed with the returns of a 3-year equity SIP.
But a longer time frame can help you take advantage of rupee cost averaging. It helps improve returns by bringing down the acquisition cost.
Choose the Right Funds
Every equity fund in the market isn’t equal. You will have to follow a proper framework to choose funds for your SIP. Start by checking the pedigree and AUM of the fund. Moreover, refrain from investing in funds with a frequently changing management team.
When the fund management team does not remain stable, the investment philosophy becomes inconsistent. While looking at returns to compare funds, don’t get occupied by the absolute returns. Instead, you should focus on the risk adjustments and consistency of the returns.
Determine the SIP Amount
Investors are often worried about whether they should change the SIP amount according to market fluctuations. You might focus on timing the market by increasing the SIP amount during favourable times and reducing it when the market does not perform too well.
But adjusting your SIP amount according to the market is difficult and pointless. The purpose of SIP is to let time work in favour of cost and compounding to offer you better returns. Once you find a good SIP, fix an investment amount and stick to it without trying to time the market.
SIPs are a disciplined way to invest in getting good returns in the long run. Determine your financial goals and find the best SIP to invest in today!