Are you planning to invest in mutual funds? You must have stumbled across the term SIP investment. SIP, commonly known as systematic investment plan is a popular mode available to investors to help them invest their money in mutual funds in a planned manner. But before you go forward and invest in mutual funds through the SIP mode of investment, let’s look at some things that SIP investors must be aware about to earn higher returns on their investments.
What is SIP?
As mentioned above, SIP is a mode of investment that allows individuals to invest their money in different investment avenues such as mutual funds in a planned and systematic manner. Under SIP investment, an investor invests a fixed sum of money in their desired mutual fund schemes at regular intervals for a fixed period of time.
Things to consider before investing in SIP mutual funds
Here are a few things that you as an investor must consider before investing in SIP mutual funds:
- Identify your financial goals
Before you begin your investment journey in mutual funds through SIP mode of investment, you must understand the objective of your investment. This will help you determine the investment amount and the investment horizon required to reach your personal financial goals and objectives.
- Factor in inflation
One of the reasons why several investors decide to invest in the markets is to beat the ongoing rate of inflation. While choosing the right SIP mutual fund investment plan for your portfolio, you must consider the current and the expected inflation rate of the economy. It is recommended that you determine your target investment amount after factoring the appropriate rate of inflation so that you do not fall short of funds in the future.
- Consider other parameters
There are several other investment parameters that you must also consider before choosing the right investment plans for your portfolio. An investor is advised to consider certain factors such as their personal goals, return expectations, tax implication, risk appetite, age, financial responsibilities, income levels, etc. among other factors.
- Diversify diversify diversify
Market experts and mutual fund advisors often recommend their clients to diversify their investment portfolio across location, asset classes, and sectors. Diversifying your investment portfolio can help you diminish your risk exposure to a great extent. This is because the loss arising from any one type of investment can be offset against different investment that may offer comparatively higher returns. The underlying reason behind this concept is that no two asset classes are expected to move in the similar tandem at any particular time.
- Track the performance
As an investor, your job does not end at choosing the right mutual fund investment plans for your investment portfolio. You must constantly track your investments to get a better picture about how your investments are performing as compared to other funds in the same category. If your investments have been consistently generating poor returns, it might be a good idea to move to other types of investments.