As an investor, you don’t necessarily need a lump sum amount to reach your financial goals; you just have to be wise with your investments. And Systematic Investment Plans (SIPs) in mutual funds offer this kind of opportunity – to invest small sums regularly and strategically, leading to your desired financial goals over time.
But true financial success does not happen overnight. It requires careful planning, determination, and diligence to get the most out of your investment. With that being said, here are 4 tips that can help you get the most out of your SIP investments – from evaluating the risk-reward ratio to selecting appropriate funds – so that you can create a well-rounded investment strategy and maximise returns over time.
- Set your goals and start multiple SIPs for different goals
Identifying goals is the most important factor in maximising the return on your SIP investment. Consider why you want to start an SIP – whether for your child’s education, retirement, vacation, or to build a larger corpus. Once you have decided on your goal, you should choose the appropriate type of scheme, term, frequency, and quantity that best suit your objectives.
Depending on your goals, you may choose to invest in debt funds offering capital stability, equity funds offering long-term growth opportunities, or a combination of both with a balanced advantage fund. And, if you have multiple objectives for investing in SIPs, consider having separate investments for each goal to track your investments better and ensure they are properly allocated.
- Carefully select the best mutual funds to invest in
Selecting the right SIP mutual fund to invest in requires careful assessment of multiple criteria.
Financial experts advise investors to analyse the historical performance of funds against benchmark and similar funds. Look at both short-term to long-term patterns, such as 1-year, 3-year, 5-year, or since its inception. Evaluate the past and current fund manager track record to determine how effective they have been in managing investment to make an informed decision about potential future opportunities for growth.
Furthermore, it is beneficial to use a systematic investment plan calculator to compare different SIP plans based on factors such as duration, return rate, and monthly contribution amount to identify the one that best fits your financial goals.
- Take advantage of the SIP top-up facility to maximise your investments
You can use the SIP top-up facility to increase your SIP instalments as your salary or savings increase. By investing additional fixed amounts at intervals, you can strategically increase the value of your portfolio without having to make a large upfront investment. This facility can give you greater control over when and how much additional funds you want to invest in your scheme, allowing you to benefit from market fluctuations for increased returns. It can be an effective way to increase the growth rate of your capital while still remaining within a budgeted amount.
- Avoid early withdrawals
If you have invested your money in an SIP investment plan with an aim to maximise the returns, it is important that you avoid making early withdrawals. A longer investment horizon in an SIP tends to generate better returns even when markets experience short-term fluctuations due to power of compounding and rupee cost averaging approach (which brings down your average cost per unit over time) — allowing you to build a healthy corpus for future.
Besides the 4 tips mentioned above, it is also important to stay consistent with your investments, invest according to your age and risk appetite, monitor your portfolio frequently, and focus on long-term results. Since every investor has different goals, income, risk tolerance, and expectations, it can be beneficial to consult a financial advisor to invest in SIP plans with an appropriate asset allocation approach and strategy customised for you.