10 Tips to Maximise SIP Returns!

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To get the best out of any investment, it is crucial that you adopt a disciplined and long-term investment approach. Investing in mutual funds through SIPs allows one to invest a fixed amount regularly and accumulate wealth over time. As per the latest data from AMFI (Association of Mutual Funds in India), Mutual Fund SIP accounts stood at 7.30 crore (as of October 2023). It is clear that retail investors are taking high interest in this investment method due to its sheet potential to generate higher returns. Here are some tips that can help you maximise returns on SIP investment.

1. Consistent Investment: A Systematic Investment Plan allows one to have a disciplined and consistent investment schedule. By investing a fixed amount regularly (monthly or quarterly), one stays invested and benefits from Rupee Cost Averaging irrespective of the market conditions.

2. Early Bird Advantage: By starting an SIP early on in your career, you would benefit from the power of compounding. The returns generated through SIP would further generate more returns. So, the earlier you would start the SIP, the more time you would get to reap benefits from exponential growth over time. Ideally, it is preferable that you should start the SIP as soon as you get a stable income source.

3. Keeping a Long-Term Perspective: One should keep a long term investment horizon before investing in equity mutual funds. This is because these funds tend to perform well over the long term. Ideally, it is preferable to invest at least for 5 to 10 years to navigate through market fluctuations and benefit from the power of compounding.

4. Choose the right mutual fund scheme: It is preferable to choose a suitable mutual fund scheme that aligns with one’s financial goals, risk appetite and investment horizon. One can invest in equity funds if the goal is capital appreciation. While, if your goal is to achieve stability in investment, then, it is advisable that you should invest in debt funds.

5. Portfolio Diversification: It is advisable that you spread your investments across different asset classes and sectors. This will mitigate the risks associated with a single asset class. It will help you gain stability in your portfolio. You will be able to thwart your portfolio from market fluctuations. You may invest in a mix of equity, debt or other stable options such as gold and real estate.

6. Invest as per Your Risk Appetite: One must invest in mutual funds through SIP as per one’s risk taking ability. Different mutual funds cater to the risk tolerance of different investors. An investor with a moderate to high risk taking ability prefers to invest in equity funds. However, one must also remember that higher the risk, higher are the chances of handsome returns and so is the volatility.

7. Top-Up your SIP Investment: A Systematic Investment Plan comes with a special feature of Top-Ups. It enables one to increase SIP investment along with the rise in income levels. This allows investors to buy more units of a mutual fund when prices are lower. It would also increase chances of high returns over the long term.

8. Regularly Monitor Your Portfolio: You must regularly review your portfolio to ensure that it aligns with your risk tolerance and financial goals. It is also advisable that you review the performance of the mutual fund that you have invested in. If needed, you may also look to rebalance your portfolio as per market conditions.

9. Check Expense Ratio: It is the annual fee that mutual fund houses levy to maintain their scheme. Ideally, one should prefer a mutual fund with a low expense ratio as a higher value can take away investor’s profits. Thus reducing the overall investment value of the fund.

10. Calculate Your Estimated Investment Value: One can calculate the estimated value of potential returns from SIP using a SIP Calculator. It is an online tool offered by most mutual fund houses and other financial institutions. It can help you find out how the fund would perform based on historical data. You can also find out how much contribution you should make each month so that you achieve the desired goals. However, one must also remember that this just gives an idea about how you would align the SIP strategy but there is not guarantee on the actual return value.

Conclusion

Investing in mutual funds through a systematic investment plan is the best approach to long-term wealth creation. But, one must start early and stay invested for a longer duration. For investors seeking higher returns, it is advisable to SIP in equity mutual funds. One must carefully assess the risk appetite, financial goal along with careful consideration of the above mentioned tips to harness the full potential of SIPs.