There are 2.74 crore SIP accounts in India as of June 2019 contributing around Rs 8,122 crore to the mutual fund industry. This number is only increasing month by month. It is enough proof for the gaining SIP popularity in India. However, this popularity is useless people often undervalue SIP and its worth. SIP is an excellent tool for creating wealth. Being a SIP investor, one needs to know how to make their SIP work effectively. Here are a few golden rules of SIP every investor needs to know.
Understand how SIP works
The first and probably the essential rules of SIP investment. Understand how SIP works. SIPs do not pay a fixed interest or have a constant interest rate. SIPs are not just profitable all the time, and they do face losses. One can see a red or green in their portfolio for a prolonged period. Do not expect money from a SIP investment in the short-term. SIPs only work in the long run.
Align SIP with goals
By aligning goals with SIP helps in quantifying the goals. Investing become simpler as one knows for how long will they have to continue their SIPs and when to redeem their investments. Having a target attached to a SIP helps the investor save in a disciplined manner and keep the SIPs running until one reaches their goal. Aligning a goal to a SIP investment is much better than investing blindly without a purpose.
SIP is only for the long term
SIPs are to be done only for the long run. One needs to invest at least for five years through SIP to get good returns. Investing through SIPs for short term is only going to lead to losses. Long term investment and SIP is the best combination for wealth creation.
Don’t time the SIPs
There is no right time to enter the market when one is investing through SIP. The timing of the market doesn’t matter, but the time one stays invested in it matters. Anytime is the best time to enter the market with SIP investment. Also, pausing the SIPs in pricy market conditions or redeeming SIP investments in times of market correction is not a wise thing to do. Investors need to continue their SIP investments until they reach their target amount.
Falling market benefits SIP
Is the market facing a correction during your SIP investment? Well, it is undoubtedly beneficial for SIP investors. Investing in falling market conditions through SIP will buy more units of the fund than usual and reduce the average cost of investment. It, in turn, increases the return due to the low cost of investing.
Step-up SIP works like magic
Opting for a step-up SIP is certainly advantageous than choosing a regular SIP. Increasing the SIP investment annually, along with an increase in income, will help earn returns that beat inflation. Step-up SIP is a great tool that allows an investor to achieve their goal faster or with a higher corpus. Also, opting for a step-up SIP will save the investor from falling prey to lifestyle inflation and keep his expenses in check.
Mutual funds investments done through SIP work wonders on a person’s portfolio returns. SIP inculcates financial discipline in a person and helps achieve monetary life goals with ease. Follow these golden rules of SIP for making the most of your SIP investment. Start your SIP investment today if you haven’t already. Do take the help of financial advisors before starting your investment journey.