Invest on SIP in Mutual Funds; know how you should do it.

 

If you invest in SIPs of mutual funds, then you have to understand the rules of this investment. It is often seen that the investor sometimes gets scared and withdraws money, which he has to bear. Take any middle quartile equity mutual fund and take any earlier 10-year SIP period, you will find that their annual return far outstrips all other asset classes.

 

Not all investors starting SIP did able to get returns. If you are an investor who wants to make a successful SIP investment then these three golden rules can help you.

 

Rule 1: Understand how things work

 

Many SIP subscriber who go to SIPs from fixed return assets like recurring deposits and PFs actually do so because they are not well aware. Attracting from past returns ranging from 12–14% over a period of 5–10 years, they assume that these returns are not really going to be the same. There are countless instances in which SIP returns have been negative for the first two or three years and these returns exceeded 10 per cent on annual basis weeks or months later. Any investor can start investing on SIP through open ended fund.

 

The magic of SIP can only be realized through patience and discipline. If low returns disappoint you, or you are investing through SIP with the expectation of continued annual growth, you will never be able to realize its full potential. So keep in mind that you have to set a lot when travelling to your SIP.

 

Rule 2: Don't stop-start-stop

 

It has often been seen that SIP subscriber sometimes close and sometimes start SIPs based on the volatility of the equity market. It is important to know how an investor generally reacts to the cycle of the market. The boom cycle fills a lot of enthusiasm among investors. Most investors start SIPs when the market is in a boom. Because those who have been performing in this boom, they like it. But when the cycle of recession comes, most investors get frustrated and scared. They stop the SIP.

Such habits prevent investors from building assets over the long term. Because the biggest benefit, the average cost of the rupee is not earned at such a time. In fact, stopping and sometimes starting SIP proves to be very fatal. This hurts you in the long term. You should understand well that you have to control your emotions. Stopping and re-starting the SIP can only give a bad return.

 

Rule 3: Keep your goals in mind

 

Systematic investments in volatile growth assets work best when their goals are clear. Interestingly, we have seen that SIPs with random numbers like Rs 3681 per month continue for a long time while SIPs with a round figure such as Rs 4000 are less disciplined.

 

This happens because the SIP of the random amount is chosen with much consideration, keeping in mind your retirement or education of your child. The SIP with a round figure is started at any time. For best results, prepare a financial plan before starting your SIP. Keep track of his progress.

 

Monthly target SIP required

 

If you want to retire with 5 crores in 30 years, then you should invest 14,306 rupees monthly. For the child's graduation expenses in 15 years, invest Rs 10,008 monthly for the need of 50 lakhs. Invest Rs 15,305 monthly for 20% down payment on a flat of Rs 1 crore in 7 years. (This estimate has been made assuming a CAGR return of 12% per year).

 

Returns from mutual funds are not guaranteed. Understand the risks carefully before investing. By doing this you will be safe from risk and a better investment can be made. This can benefit your investment portfolio.