5 Smart Tips to Invest in SIP for Higher Returns by ET Money

By Team Newsable | First Published Mar 25, 2022, 5:47 PM IST

SIP investment plans can yield attractive returns and create long term wealth if done rightly.

Systematic Investment Plan or SIP as they are commonly referred to are the best when it comes to creating a corpus over a period of time. It can help cater to various requirements like marriage expenses, buying a property, retirement fund and any similar future goals that require liquidation of your invested amount at a later stage. Before we go through the important tips that can help you accelerate your financial growth with SIPs, it is important to understand clearly what SIPs really are.

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SIP Investment revolves around investing a specific amount at regular intervals into mutual funds. The amounts that you invest are allocated towards buying certain units of mutual fund, which accumulates over a period of time. SIPs are considered an affordable way to invest in mutual fund schemes as they can be started with a relatively small amount every month. As it is one of the most accessible investment methods, anyone can take a plunge in the mutual funds' sector, even if they are first time investors. One of the major advantages of SIP is its rupee cost averaging, where you can buy more units when the prices are low and decrease the purchase of units when the prices rise. This averages out the cost of your units and lessens the impact of market fluctuations on your investments.

However, if certain rules are applied, your investments can give better results. Here, we lay out 5 tips that can turbocharge your SIP returns:

Begin Early:

Investing at an early stage of life ensures that you get more time in your hand to allocate your savings which impact its growth. As SIPs demand regular investments of coupled with an early start can give adequate returns on your invested amount.

For example A and B who both are of the same age and invest same amounts in SIP, earning similar returns, However, A had started investing Rs. 5,000 every month at the age of 25, and gets 15% annual returns, whereas B started investing Rs.5000 every month at the age of 35 getting the same annualized returns. The investment period is till the age of 60 years.

In this case, A had invested 21 lakhs for 35 years and his portfolio size has grown to 7.43 crores at the end of the term at a growth rate of 15%, whereas B had invested 15 lakhs for 25 years and his portfolio size has grown to 1.64 crores at the end of the term. As you can see, A has earned 4-5 times more than what B has just by beginning early by 10 years. This indicates clearly that it is essential to start early to maximize your returns in mutual funds.

Select the Right Mutual Fund:

To get the best results, it is important to opt for the best mutual fund that is also right for you. A lot of factors need to be considered while choosing the best funds which include its past performance, risk ratio, investment horizon and your goals that you want to achieve through investments. Comparing funds on distinct parameters like expense ratio, consistency in performance, reputation of the funds' manager is also critical while selecting the best funds.

Avoid Premature Withdrawal:

Financial emergencies occur at any given point of time and to meet these unplanned expenses one might have to cut short his SIP journey and withdraw funds before its maturity. However, if the markets are unstable at the time of withdrawal when your portfolio value has pulled down, it might turn out to be a loss making proposition for you. Even though SIP is a great tool to grow your invested amount, premature withdrawal will have a negative impact. In unavoidable circumstances when withdrawing becomes inescapable, opt for pulling out only the returns part of the invested amount so that the principal amount is intact, which can keep generating income for you.

Stay Updated on Your Investments:

Reviewing the current status of the mutual funds you are invested in and checking out its performance at regular intervals can help in maximizing returns. Keeping a track of how the fund is performing helps you gain insights if the graph indicates a negative slide, which can influence your investment decision. This can help you park your investments in some other mutual fund which is performing well. Also, checking out the past data can also influence your decision in the right manner. So, stay updated by observing closely to minimize losses.

Gain in-depth Knowledge:

To magnify your returns, you should dwell deep into the figures by digging past records of the mutual funds in the form of historical patterns, including their return cycle. Get a hold of their past records and how much they have yielded till date. Only after studying through it should you go ahead with your investments.

SIPs are best suited for long-term goals and objectives. It is the perfect way to start investing in mutual funds, as it helps you plan for the future by selecting the best investment options. SIP Calculator can also help you in giving you more insights of your SIP Investment.

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