Follow this process to get your SIPs in order

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According to a recent report by the Association of Mutual Funds in India (AMFI), domestic investors have opened around 3.04 crore SIP mutual fund accounts till date. This report demonstrates the abiding confidence of Indian investors in SIP investments. This could still stir several questions among new investors who aren’t exposed to the world of investing and don’t know the answers to questions such as – i.) “What is SIP?”, ii.) “How to invest in SIP?”, iii.) Is investment through SIP ideal for me? 

In this article, we will try to address all these doubts.

A Systematic Investment Plan, or SIP, is an investment vehicle that allows individuals to regularly invest a small amount towards their preferred mutual fund. Details such as the investment amount, the frequency of the investment, and the date on which the investment takes place are pre-determined by the investors. 

SIP investment is ideal for long-term investors as they help generate wealth thanks to the benefits of rupee cost averaging and the power of compounding. Individuals prefer to invest in SIP as it instils a sense of disciplined investing without the worries associated with market volatility. Individuals who invest via SIP also don’t have to time the markets unlike individuals who directly invest in mutual funds in lumpsum or those who invest directly in stocks. While there is no doubt that a periodic investment route like SIP is an efficient way to invest in equity mutual funds for the long-term, it is essential to do it right. 

Follow these 4 steps to ensure that the SIP you sign up for is required for your portfolio:

  1. Begin with a goal

Before you begin your journey to invest in mutual funds, it is vital to understand your investment goals and objectives. It’s always advised to link your financial goals with your mutual fund investments. Determining the risk appetite and the investment horizon to achieve these goals decides whether you should invest in equity, debt, or hybrid funds.

Choose the apt category and fund
After identifying the appropriate asset class, identify the most suitable fund category basis your risk appetite. For instance, mutual funds ideal for long-term investment are dynamic bond funds, gilt funds, and medium-duration bond funds. Equity allocations are ideally made depending on the investor’s willingness to take the risk.

Decide on the amount and other details
Your SIP investment value cannot be an ad-hoc amount that pops on some investment app. It has to be linked to your financial goals and objectives. To determine the right SIP value for you, first determine the required investment amount needed to achieve the goal, and apply an appropriate inflation rate to determine the value required in the future. Also, determine other details like the tenure of the SIP, investment options, i.e. growth or dividend payout, etc. You can use a SIP Calculator to calculate the returns you would earn on your SIP investments and also tells you how much you would need to invest every month to earn a target corpus.

Monitor carefully
Fix a schedule to monitor the performance of your mutual fund investment regularly and make the required changes if warranted. Tracking your SIPs periodically is important and you should never skip it. 

Now that you have successfully aligned SIP with your financial goals, match it with your investible surplus. Is your SIP value more than your current capacity? Don’t worry and invest as much as you can. You have the option to bump it up in the future as your savings and income grow. Happy investing!

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