According to the Association of Mutual Funds in India, there are around 5.17 crore regularly invested SIP accounts, of which 70 percent of them earn less than Rs 5 lakh per annum.
When it comes to investments, individuals are looking for investment opportunities where they can create an effective investment profile of their own. It all depends on their income, expenditures, financial goals, and also risk profile.
For first-time investors or beginners, Systematic Investment Plans (SIPs) can allow them to earn high returns at lower investment risk. Individuals can invest as low as Rs 500 every month, quarter, or year depending on their financial goals and income.
However, as SIPs assure good financial health and also foster the practice of savings amongst individuals, it might be challenging to increase returns after a certain point.
5 tips to invest regularly in mutual funds to maximize returns
Identify your financial goals
People invest in mutual funds to achieve both short-term and long-term financial goals. Thus, before starting with a SIP, know your end goal and the number of years you need to achieve that amount.This will help you decide on the regular investment amount and your tenure.
Also, individuals have different financial planning such as children’s education, marriage, or even buying a car, thus you will need more than one SIP to achieve those goals.
As an investor, you should research the mutual funds which fetch good returns. Thus, make sure you are doing imperative research about your funds and the returns over the given period.
Increase your investment regularly
It is necessary to boost up your investments, because the more the investment, the better will be your returns.
For instance, two friends, Ramesh and Suresh have started at Rs 10,000 per month in a SIP that gives them returns of 12 percent. However, Ramesh started increasing his investment by Rs 1,000 per year, while Suresh kept the investment the same throughout 20 years.
After 20 years, Ramesh’s portfolio size was around Rs 196.91 lakhs, whereas Suresh’s portfolio size was approximately Rs 99.92 lakhs.
Understand Inflation with Investment returns
When it comes to the best investment plan, the main thing that you should factor in is the existing and future inflation. This simply means that in the future, your goals may change and might end up requiring a high amount of money.
That is one of the main reasons why people are advised to invest in more than one SIPs and also decide on the SIP amount beforehand. Thus, it is advisable to understand your future targets and consider the inflation growth over the years when you invest.
Avoid Early Withdrawal
A financial emergency is something that you can’t avoid. Thus, to meet up with those unplanned situations, you might withdraw your SIP investment. However, if you withdraw when the market is low, your investment portfolio value will be less.
Also, avoid making an early withdrawal in your investment journey. It is best to withdraw when nearing your financial goal or retirement age. Furthermore, avoid taking out the principal amount of your investment during the early stages, as it can help generate more returns for you.
It is never a good idea to stop your SIP before you have reached your investment goal. Market fluctuations should have no impact on your decisions. Remember that the longer and more you invest, the greater your investment return.
When the markets are down, you continue your SIP and buy more fund units, whereas when the markets are up, you buy fewer fund units. As a result, you benefit from both down and up markets. The term for this is rupee cost averaging. When the markets have reached their apex, you can benefit from higher capital gains because your purchase cost has been averaged out and is lower.
Every mutual fund scheme has a set of goals that should be met. As a result, mutual fund risk levels differ depending on the fund strategy. You must evaluate your needs and risk tolerance.