Busting the myths of an SIP investment

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The term ‘systematic investment plan’ has caught on so much in the past few years that it has almost become a must-be-a-part-of trend in today’s world. Though an SIP has largely been recognised as one of the best forms of mutual fund investment, there are many false notions in the grapevine that mislead us. In this article, we aim to educate you with the basic principals of mutual funds investment through a systematic investment plan so that you may maximise your returns and make the right choices regarding where to invest money and how to invest money. Here are some simple rules to follow:

 

Rule: Learn the basics

As always, we need to learn the basics of a system, before we aim to exploit it. We need to understand that SIP investments fluctuate in their rates of return which is nothing but it’s normal way of working.  In fact, there may even be a situation in which your returns may be stunted for a considerable amount of time and other times when your funds are performing exceptionally well. You need to understand these ups & downs of mutual fund performance and accept them.

 

Rule: Always look at the bigger picture

A systematic investment plan is essentially a long-term instrument of wealth management. Our short-term expectations of profit are highly unlikely and unrealistic. If you speak with your financial advisor, you will know that he or she will advice against short-term SIPs or banking on the temporary high of investing in a fund that is currently ruling the market. The minimum time frame for one to allow this category of a mutual fund investment to play its role would be at least five years and the ideal time frame would be ten years or more. This is to ensure that the greatest strength of mutual fund investment (compounding effect) kicks in. From then on, you can sit back and thank yourself for being patient enough to allow your wealth management to cascade into higher and higher profits.

 

Rule: Sometimes, being passive pays off

Systematic investment plans are one of the instances where being passive has its rewards. However, be weary, this essentially means that you need to know when to be passive and when to be active. Do not be phased by temporary lows in the market and withdraw your SIP. At the same time, you need to know when exactly to re-align your assets in order to dissolve non-performing funds and re-allocate them according to your best interests. Speak to your mutual fund advisor to find the right balance between the two and you will be well on your way taking advantage of the top mutual funds in India.

 

Rule: Do not be greedy or over enterprising

Once you have analysed the market for the best investment plan and made your investment decision, do not be surprised if you are not seeing any value additions or scope for improvement. This is not because the market is not providing you with opportunities of expansion, but more-so that you have done your due diligence and made the best investment options. Do not get fooled by realigning your assets, for the sake of it, or biting into mutual funds that temporarily scale the performance barometer.