Systematic Investment Plan or SIP offers an excellent opportunity to invest in a disciplined and structured manner. It not only allows you to invest small amounts on regular basis but also benefit from the power of rupee cost averaging. A prudent investor can take certain steps to magnify the return potential from his SIP investments. Let us see how?
Start Early to Benefit from Compounding
The best way to magnify the returns from your SIP investment is to start early when your expenses are less. Even in your initial days of earning you can easily save a certain amount and use it to invest in mutual funds via a SIP. This will help you reap the benefits of compounding and build a big corpus for meeting your bigger financial goals. You can use a SIP calculator to know how much to invest and for how long to save a big amount to meet your goal of buying a new car or a house.
Enhance Your SIP Amount Whenever Possible
Apart from starting early you also need to enhance the SIP amount as and when possible. This could be when your salary increases or you have another source of income. Take some amount of the increased income and invest in SIP to achieve your financial goals quickly or build a bigger corpus of funds for use at a later stage in your life. You can use a SIP calculator to find out the value of your SIP investment after any number of years and compare the returns.
Do not Withdraw Early
Stopping a SIP mid-way or withdrawing your funds is not a good idea. Also, if you decided to withdraw your SIP investment at a time when the markets are low your investment gets eroded and you get lower returns. Your aim should be to stay invested over the whole cycle as it will allow you to take advantage of lower prices besides enabling you to average out the purchase cost over time.
Link Your SIP Investment to a Goal
SIP investments allow you to achieve your financial goals in a disciplined manner. So, make it a point to link your investments to specific financial goals and then choose your SIP amount and duration accordingly. The quantification of your goal will help you choose the right mutual fund plan online and decide the amount to be invested. It will also motivate you to save and invest more to achieve your set goals.
Spread Your SIP Payment Dates
You can invest in a number of SIP plans to achieve different goals. But one thing to take care of is to spread the SIP payment dates to ensure that you do not have to pay for all of them together. This also ensures that you have some funds in your bank to deal with emergencies.
To ensure that your SIP returns are the best possible, invest in a fund that has been performing well consistently, its fund managers have a good track record and its expense ratio is less. Also, ensure that the mutual fund scheme will help you achieve your financial goals. You can take the help of a SIP calculator to compare the various options and choose the best. These tips will help you use the SIP investment route for mutual funds to reap good benefits and achieve your financial goals.