Effective Strategies To Get The Best Of Mutual Fund SIP

When investing in mutual funds one has to look at a variety of factors. It is true they are a better option than the age old Indian options of post office schemes or the regular fixed deposits. However, one needs to understand the subtle nuances which are involved in selecting a mutual fund SIP scheme.
     
Focus and Ideas:

People at the outset try to look at performance of the fund as well as rankings as easy pointers. However, ratings are more reliable of all these common methodologies. The risk here is that past performances may not get replicated. Further, rankings lead to investors choosing funds which have already seen the best of times or returns.
 
Strategies:
 

  • It is important to be goal oriented in case of any investment. The same holds true for Systematic Investment Plans or SIPs. The type of investment will depend on the horizon desired by the investor.
  • It would be a good plan to set up SIPs execution dates at different times during the month. This will allow the investor to not only hedge against market anomalies but also take advantage of any sharp favourable price bends.
  • Many investors often become disheartened by the amount of money which needs to be invested to achieve the desired sum at the end of the maturity or desired investment horizon time span. One should start small and then step up the SIP value annually or as and when the earnings and consequently the savings or disposable income experiences a hike.
  • It is essential that fund withdrawals be linked with goals and future needs. Hence, fund investments and expected future curves in performance should be compared with needs such as education of a child, marriage of self or child or a major requirement for a need such as purchase of home or vehicle.
  • SIPs are the best way to invest in equity linked funds since they provide tax exemption under section 80C of the Income tax act. Further, it is advisable to avoid being last minute by spreading out the investments across the year.
  • It is also advisable to have SIPs set up in a manner that the outflow of cash happens towards the beginning of the month which will aid expense planning for the other items in the monthly budget.
  • SIPs should be carried on with a long term approach to maximise returns. Long term approach and lack of panic driven selling during plunges in markets result in higher net returns. This is so since one is able to take advantage of lower prices by going through the entire cycle of the market.

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