SIP relay: Pointers to consider

A healthy investment is always considered as an ideal way to generate wealth. As markets become more volatile investors need to use volatility to their advantage while allocating capital for the long term. Amidst a plethora of offerings, investors today are spoilt for choice and often get confused in their attempt to identify the right investment products and avenues. One fact however is seldom lost in this hoopla, that they can customize products and services to meet their financial goals.

Today, as digitisation and app-based transaction services replace traditional in person modes of execution, transacting in financial products have become seamless and secure. Also, as people learn about mutual funds, acceptability of mutual funds as a long-term financial management vehicle has become more wide spread. Investing in a mutual fund enables investors to invest their money in a pool of funds which allows them to distribute their money in multiple stocks. It gives investors a medium to benefit from capital markets via a professionally managed low-cost medium.

Mutual funds today offer a variety of investment solutions and even offer preset modes to invest, thereby making transactions automatic and hassle free. Systematic Investment Plans (or SIPs) is one such mode of investing. SIPs are ideal form of investments for those who wish to invest frequently rather than a large sum at one go. Investors can start investing from a minimal amount of Rs 500/month. What’s more, The SIP is available across all major asset classes – equity, fixed income and hybrid products

As brilliant as this sounds, most investors who are new to investments and financial planning in general, tend to make some common yet crucial errors that may be detrimental to their investment journey. To ensure that your SIP plan works best for you and delivers the returns that you have been expecting, the following pointers should be kept in mind before investing in SIPs.

Chose the right boot

Investors should keep in mind that SIP investments are a periodical investment and not lump sum. The amount chosen for investment should be feasible enough to be invested on a regular basis. The right way to do this is to finalise your financial goal first and then align it with your savings bucket (which should be expense ridden) and then decide on a tenure. It is advisable that the investors begin at an affordable amount which can later be modified, as income increases

Play for longer laps

SIP investments can help investors generate wealth if invested for a longer tenure. A common mistake by investors is to pull out investments if their portfolios aren’t performing well on a shorter basis. The concept of SIP investing works on rupee cost averaging approach and helps in creating wealth in the long run. Hence, one should stay invested in the longer run to gain maximum returns.

Make the right investment choice

Investors can only generate wealth through SIP investments if the chosen portfolio is apt for their financial goal. Based on their savings bucket, risk appetite and liquidity, investors are to assign a particular tenure to each of their financial goal. Choosing the wrong portfolio might not deliver on your expected returns leading to a loss on investments. Therefore, before investing, one must map out the returns you need to reach your financial goal

Market may panic, you should not

Generating wealth is a race that can be won only if you are slow and steady. SIP investment may do wonders with your investments, if you stay invested for a longer run. Many times, investors lose patience and end up pilling out investments. A panic in the market may affect your portfolio, but over the years we have seen market bouncing back. So during confusing situations, one should just stay calm and invested

Practice makes perfect

With other expenses at hand already, investments should not be considered as just another expense. Though investing in mutual fund is relatively easier, investors should keep in mind re-analyzing and re-visiting will not do any harm to your portfolio. Any changes in the savings bucket, risk appetite or liquidity will directly affect your investments. Change in your wallet is directly related to your investment, hence to maintain a healthy portfolio of investments, investors should regularly monitor their investments.

Every day is a perfect day to start

Timing the market is a well-known verse in investment market. But the pioneers say, ‘there is no good time to enter the market; except the day you decide to.’ While investing in SIPs, investors need not worry for a perfect time to start, as it averages out your costs of investing. The sooner you start investing, the better you can expect

SIP investments can help you achieve your financial goals, create wealth, manage your risk appetite, but it also needs discipline and dedication for years.

(The writer is CBO, Axis AMC)