SIP or Systematic Investment Plan is a type of investment scheme offered by Mutual Fund companies. An SIP is basically a periodical investment of money (monthly, quarterly or yearly) into a selected Mutual Fund. Investing in an SIP brings about financial discipline and are not bound by market forces of index levels. In the long run, SIPs help to average out your purchase price and maximizes returns. Another major benefit which we often forget is the power of compounding. When you invest for a long period of time and that gives you a return, when you further invest this return, your money starts compounding. This creates a large pool of money compared to where you began from, which will help you meet your financial goals that you’ve set. The barrier to entry is also very low because you can put in as little as Rs. 500 into an SIP.
Before you start investing in SIPs, here are 5 rules to ensure your Mutual Fund SIP is working for you:
1. Start Sooner Rather Than Later
Start early; as early as possible – This is the cardinal principle and is a powerful tool to fight market volatility and benefit from the enormous potential of compounding over time.
2. Loyalty Is The Best Policy
Stay loyal to your SIP and stay disciplined: Once you start a SIP, ensure that you do not discontinue the SIP or that you do not miss on SIP contributions.
3. Don’t Keep All Your Eggs In One Basket
Focus on diversified equity funds and focus on consistency – Investors are normally confused as to which fund to select for the SIP. Your long term SIPs should always be in diversified funds.
4. Works Towards A Goal
Let every SIP be tagged to a specific goal to make it meaningful and measurable – Before you start a SIP, ask yourself a basic question; what is the purpose of the SIP? To make your SIP purposeful you must tag each SIP to a long term goal.
5. Axe The Tax
Monitor regularly and extrapolate in post-tax terms – You need to monitor your SIPs on a regular basis. Also, always measure your SIP in post-tax terms.
If you have anymore tips and tricks to share, please do comment in the box below!
