Maximize Your Mutual Fund SIP Returns

Maximize Your Mutual Fund SIP Returns

Relatively low investment costs, professional management and diversification benefits are some of the many benefits that mutual funds have been offering investors for a long time now. Systematic Investment Plan (SIP) is one of the most favoured vehicles for investing consistently into mutual funds. It helps in developing the saving habit. However, there are some important tips that cannot be overlooked if you’re serious about maximizing your returns from such mutual fund SIP investments. Let’s go over them briefly as follows:

The significance of making annual increments

​Although Systematic Investment Plans do help significantly in making a fixed amount of monthly investments, it doesn’t mean that you have tostay stuck with the same investment figure during the entire tenure of the plan. Your savings are bound to go up with increases in your income. Hence, you should keep increasing your SIP investment amount as well.

​Please keep in mind that your long-term fund requirements may also increase significantly over the years, owing to inflation. Therefore, it becomes imperative that you review and increase your monthly commitment to SIP with each passing year. This will help you factor in things like inflation and lifestyle changes. However, it’s not necessary to increase your investment through an altogether new SIP scheme. You can add to the existing one as well.

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The importance of staying invested over the complete life cycle

​People have a tendency of terminating their SIP schemes as soon as they see a drop in the market. This defeats the whole purpose of investing via the SIPs. Staying put with the SIP over its entire cycle enables you to bank on both the upward and downward movements of the market, apart from averaging out the buying price. If you exit during the market lows, you forego the chances of gaining more number of units when the prices are low. Generally, it is advised that SIPs should have a 3-5 years or even a longer horizon to tackle market volatility.

Using Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs)

​Once you close in on your financial goals, you need not wait till the last moment and to withdraw the whole amount in one go. Rather you can make use of Systematic Withdrawal Plans to pull out money at regular intervals, thus staying invested as well as meeting your financial needs. This as a strategy is generally used to park excess money in debt funds and gradually over a period of time move to equity funds.​

The importance of linking the SIP to some financial goal

​Just like any investment, it is important that you link your Systematic Investment Plan to your financial goals. Losing sight of your financial goals can result in making haphazard investments. It’s important that you clearly list out your goals (based on priority), fixtime periods for their achievement and finally base your buying decision on the fulfilment of each one of those goals. The main benefit of taking this approach is reduction in risk associated with market timings. As you invest consistently over a period of time, you’ll be able to significantly reduce the negative impact of market downturns.

Final word

​Follow the above-mentioned points diligently and you’ll be well on your way to maximizing your returns from mutual fund SIPs.

Happy Investing