5 Smart Strategies to Maximize Your SIP Returns

Systematic Investment Plans (SIPs) have become one of the more managed and time tested methods for investing in mutual funds. They enable investors to pay a predetermined amount periodically hence investing does not have to be stressful to build wealth in the long run. However, just begin the SIPs; it is not sufficient to get the greatest returns on the investments made on mutual funds and other financial markets. This guide is devoted to the analysis of five most effective approaches that can be used to maximize the effectiveness of SIP investments.

Understand Your Financial Goals

It is foolish to invest without goals that are actually financial, it is the backbone of any proper investment plan. No matter whether one invests in mutual funds for doing saving for retirement, purchasing a house, paying for the education of the child or to attain some other goal, this clearly defined goal assists in identifying the right kind of mutual fund and the duration of investment. Begin with arguably the simplest step of determining one’s risk tolerance and goal time horizon. For example, if you have a target in the distant future, say 20 or 30 years hence, then the Equity oriented sip are more advisable since they are higher when the maturity period is long.

If focusing on short-term objectives, it is recommended to use the debt or the mixed or hybrid funds that raw in comparison with other kinds of investments. Although in general it is much more preferable to have specific goals, it also brings a very beneficial effect into aligning of SIP strategy with your financial dreams and keep the desire to move forward and invest in stock markets even on the stock market crashes.

Choose the Right Funds

Just as every mutual fund is different, the fund you choose has a direct bearing on your SIP returns. Use your research when it comes to making your investment by considering things such as its previous performance, the fund manager, the expense ratio and the investment style. Large cap, mid cap and small cap funds are high risk and high return than normal funds mainly equity funds. Debt funds on the other hand offer less risk and always fixed returns hence they are right for conservative investors.

Hybrid funds bring equity and debt instruments to a good average by investing in both types of securities simultaneously. However, it is also crucial to pay special attention to the sector and thematic funds as these are less stable and might be useful for all the investors. Correlation isevil—don’t put all your eggs in one basket, instead, invest your money in different categories of funds to reduce risk and increase returns.

Leverage the Power of Compounding

Compounding is the basic element in SIP where the wealth is to be created. In this way, instead of taking the money and running with it, you keep the money flowing back into your investment and reaping exponential returns in the process. Thus, compound interest works wonders if you begin your SIP so early in your earning tenure than if you begin at a comparatively older age. For instance putting Rs. 5,000 every month in an SIP that generates average returns of 12 % a year will be able to accumulate around Rs. 1.5 crore in 25 years. If you have started it a few years later, or perhaps paused the SIP and continued again, this amount will drastically decrease.

The key to optimise compounding is to be consistent in using the approaches in the work of an organisation. Do not stop your SIP investments even if the market begin to decline. If one is able to purchase a significant number of units cheap to fill the stock-out, then there will be a good chance of making higher returns at a later date, the market just needs correcting.

Review and Rebalance Your Portfolio Regularly

SIP investment is not a do it and leave it kind of model. Portfolio checkups help in ensuring whether its direction and the structures it has is right in relation to your financial needs and market situations. For example, if a specific fund has been specially unprofitable lately, then it would make sense to replace it with a more profitable one. In the same way, when you get closer to your target of amassing certain amount of money, it is wise to swap your equity dominated funds with debt funds to protect your money from going down the drain through fluctuating markets.

It again assists in achieving the right proportion as of the various asset classes. Sometimes equity funds give high returns and cause your portfolio to have high equity concentration leading to high risks. Redistribution brings the investment portfolios back to spectra of the acceptable ratio and achieves diversification.

Automate and Optimize Your SIPs

In my opinion, one of the biggest benefits of SIPs is that it does not require manual investment at all. Making use of an ECS mandate makes it possible to have your SIP contributions automatically debited from your account and helps build discipline and consistency. When preparing your SIPs you should also consider other features such as step up SIPs and trigger based SIPs. A step-up SIP enables and individual to make regular additions to his or her investment amount in steps regarding their increases in income and inflation rates.

Unlike relative SIPs where one is locked into a fixed amount of investment to be made irrespective of the market volatility, this means that in case of trigger based SIPs, you are able to invest more amount whenever the prices of the shares are low. Secondly, make sure your SIPs minimise your taxes. Equity linked saving schemes ELSS are also an ideal retirement investment as they not just allow tax saving under 80C but also help in creating wealth. There are methods that help you to evaluate future revenues such as SIP calculators and it is recommended to make changes to such an investment.

Embrace Discipline and Patience

Any SIP strategy depends on two basic principles here – discipline and persistence. Market shocks are bound to happen in the market right; a disciplined investor does not allow the market to make them stop investing in the stock market. Patience is implemented because your investments may experience short term lows and highs and it therefore earns long term profits. This means that one cannot afford to make an emotional decision particularly towards the highs and lows of any stock market.

Still remember that SIPs are intended to bring the cost of investment to an average through rupee cost averaging, but will yield the best results if they are undertaken when you have set your plan rigidly. For instance during bear market they make stop their SIP’s due to impulsive decisions and end up buying fewer units at cheaper prices. On the other side, investors who invest in the stock market retire their investments frequently in trending bull markets and therefore they miss the benefit of compounding.

Stay Educated and Updated

The two primary and extensive concepts of investment are constantly evolving due to emerging new funds, innovative tools, and new approaches in the financial market . It enables one to make better decisions and realign to trends in the market place. You can also read financial blogs, attend webinars and talk with a financial advisors to gain more insight on SIP investments. Other important data, including market trends, economic factor and government policies can also be very useful.

For instance, moving interest rates, inflation rate, and political events affect the returns that a fund gives, which affects your SIP returns. Moreover, monitor your SIP performance after some time with the help of investment tracking applications and interfaces. These tools give you instant updates on your portfolio to help you manage your investments and discover potential for growth.

Conclusion

To the best of your capability, therefore, you’ll need to find a way of achieving the optimum thereby balancing between planning for them and protecting them while at the same time remaining steadfast. SIP involves, establishing financial targets, selecting the correct funds, reinvestment, portfolio analysis, and the ability not to lose focus.

SIPs are not a race, they are a marathon; they may take a long time but their benefits can last a lifetime. The real value of such investment relates to its potential for generating very high and steady returns in the long run. It’s best to start young, be regular in investing your money and witness your riches increase progressively.

Source : Buzz Artical & HSUX Solutions