Articles

THINGS TO CONSIDER BEFORE STARTING SIP INVESTMENT

by Nisha Sharma Research Analyst

Lately, SIP has become one of the most convenient methods of investing in mutual funds through which a specific amount deducted from your bank account every month, giving the investors a hassle-way to invest without writing cheques. As a result, the Systematic Investment Plan (SIP) has gained immense popularity among Indian MF investors who now don’t have to worry about market volatility and can invest in stocks indirectly. With the SIP investments, the investors no longer have to worry about timing the market.

As per the Association of Mutual Funds in India (AMFI) data, the Mutual Fund industry has opened near around 9.39 lacs SIP accounts with the contribution of Rs. 41,098 crore in FY 2019-20. However, last year this contribution was at Rs. 92,696 crores.

 

Month

SIP Contribution (in crore)

 

FY 2019-20

FY 2018-19

FY 2017-18

FY 2016-17

Total (in FY)

41,098 (till August)

92,696

67,190

43,921

 

For Reference: https://www.amfiindia.com/mutual-fund.

 

If you haven’t started investing in SIPs then you should start right away! – But, after considering a few things first.

Key Things to Consider Before Investing in Mutual Funds via SIP

Mutual fund investing is highly recommended for investors who have low-risk tolerance and looking out for less-risky ways of investing. If we compare it with the direct equity investments, then the MFs have relatively lower risks and investors do not have to actively track the investments.

Despite this, it is important for the investor to consider a few things before start investing in a SIP. You can’t start investing in a SIP just because your friend told you or your colleague doing it too. Here, we’re going to mention some key points that can help you make smart decisions regarding your investment in mutual funds via SIPs.  

Let’s take a look!

Set Your Goals

Investing will be a lot easier if you have a clear objective in your mind. You need to set goals – short-term, mid-term, or long-term. You can achieve your financial goals by routing it with your SIP investment. If your goal is of wealth creation over long-term, you need to calculate the future cost and plan your monthly SIP investments accordingly. For instance, if you are looking to achieve financial freedom then you need to invest in SIP with the strict discipline and manage your expenditures and short-term emergency funds in a way that won't get in your way of achieving financial freedom.

You also need to choose the right asset class to put your investments in motion. In short, defining the investment horizon will help you determine the future cost. Also, if your goal is to buy a new car, property, or something else then you again you need to set your goals and define time horizon.

Choose the Right SIP Scheme

Like we mentioned above, the right asset class can help you in achieving your financial goals. Therefore, it is important to consider asset allocation. You can choose from the equity funds, debt funds, and balanced funds. The amount you will hold in equity and debt will determine your overall returns. So, invest in a way so that you can achieve your goals by collecting enough money within the time frame. To do so, you need to look out for the SIP scheme that can do all this for you. When searching for the right SIP scheme, make sure to check the past performance, last ten years returns, net asset value (NAV), and category average and benchmark returns.

Don’t Stop in Middle!

It has often seen that many SIP investors stop their investment in the events of a market correction. It is because the value of underlying equity and debt assets starts decreasing. In believing that the value wills, not the market price will not rise in future, they end up selling their mutual funds in losses. After the event of a correction, they start seeing the share prices rise again.

Once again, to achieve their financial goals, these people start investing again! – As a result, they couldn’t maintain their investments and have to start all over again. So, don’t afraid of correction or slowdown. The market has performed remarkably in the past and continues to do so. All you have to do is stick with the plan.

 

Hope, it will help you get some useful insights on SIP mutual fund investments. Nevertheless, if you have a query, don’t forget to mention in the comment section below. 

About Nisha Sharma Freshman   Research Analyst

7 connections, 0 recommendations, 27 honor points.
Joined APSense since, June 12th, 2018, From Delhi, India.

Created on Sep 16th 2019 05:35. Viewed 81 times.

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