The Systematic Investment Plan or SIP is an investment scheme that is offered by the fund houses. The SIPs allow investors to put small amounts of money into selected mutual funds. These can be done weekly, monthly or quarterly. Investing a lump sum in equities is not entirely beneficial as a large portion of the income would be locked in the assets. Though the funds may perform well initially, it is very tough to guarantee something in a fluctuating market. Let us take a look at some tips to invest through SIP plans.
Tips for Invest Through SIP
1. Start investing early
Investments should be started as early as possible. Warren Buffett, one of the wealthiest people in the world, started investing at the age of 11. If you start investing early, the compounding interest can get you a higher return on your investment. The earlier you start investing, the greater the benefits you can enjoy. Also, at an early age, an investor can save more as he would not have many financial responsibilities. You can use a SIP calculator to help understand how much you should invest.
2. Do not think of holding the investment
Once you start investing, you should not bind it for a short period. The SIP returns can be quite wonderful if the investments are made over a long period without interruptions. The returns are maximized if you stay invested for a long time. SIP investment is a long and patient process and should be maintained rigorously.
3. Increase the SIP each year
SIP is a methodical investment scheme allowing investors to put aside some of their savings. However, this does not mean that the investor should constrain himself only by investing a fixed amount of money. It is recommended to rise the SIP amount as the salary increases. You should consider inflation while investing in SIP. It would give a much better return than the regular SIP through the compounding effect.
4. Volatility is wonderful
The equity market is volatile, which makes investors quite worried. The investor who wants to invest during the lows and pull out when the market is high is living in the clouds and do not understand the reality. It is not possible to time or judges the market. This is why the concept of the Systematic Investment Plan came into force.
5. SWP is better than withdrawing in one-shot
The Systematic Withdrawal Plan is quite the opposite of SIP plans, where the fund houses offer a tool to draw out money regularly. The tool would not only allow the investor to meet regular needs but stay invested in the market for a long period so that the compounding benefit can be enjoyed on the invested amount.
6. If you see an opportunity, invest
Though it is true that you cannot time the market, but you should take the opportunity when you see one. If an investor finds the right time to enter a market and has a lump sum available, then he can make investments of a larger amount and start a SIP of a lower value.
These are some of the best tips to invest through SIP. If you follow these tips, I am sure you will have a better portfolio and higher returns in the longer run. SIP is always a marathon race, don’t expect a sudden money windfall in SIP investment.