SIPs or Systematic Investment Plans have gained quite the momentum since the last few decades. Owing to several benefits offered by SIP mutual funds, investors prefer to invest in mutual funds through the SIP mode of investment. SIPs are quite convenient as an investor can choose the frequency of the intervals – daily, weekly, monthly, annually, etc. They can also choose the investment amount – an investor can invest as low as Rs 100 per month in mutual funds. They also have to pre-determine the duration of their investment – they can invest for a fixed duration or perpetually through perpetual SIPs. In this article, we will focus on various factors that you as an investor must consider before investing in mutual funds through SIP mode of investment.
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Factors to consider when investing in mutual funds through SIPs
Following are five parameters that you must take into account when investing in mutual funds via SIP mode of investment:
- Setting a right time frame to achieve your financial objectives
When planning your investments, one must strive to adopt a systematic approach to investing. You can sort your SIP investments based on different time horizons such as short-term financial goals, mid-term financial goals, and long-term financial goals. Setting a time limit for your financial objectives can aid in selecting the right SIP investment amount and the right mix of asset allocation to achieve your financial goals.
- The right amount to invest in SIP
If you are unsure about the right amount to invest in SIP, you can work backwards to determine the same. An SIP calculator not only helps to determine the future value of your mutual fund investments but can also be used to determine the monthly SIP investment amount needed to reach a particular corpus at a given period.
- Do not forget to consider your risk profile
Risk tolerance capacity refers to the risk an investor is willing to take in a particular asset class to earn significant returns. Every investor’s risk profile is clearly diverse and can be influenced by several parameters such as age, disposable income, financial objectives,immediate financial needs, and investment horizon. Understanding the type of investor you are (risk-averse or conservative investor and aggressive investor) can help you pick the right type of investment and asset allocation mix for your investment portfolio.
- Having separate Sip mutual funds for different goals
Investors have different goals to achieve from their mutual fund investments, such as buying a new house, planning a family trip, saving for your child’s marriage, or even saving for your own retirement. Having separate SIP mutual funds for different investment goals can help an investor measure their investments properly.
- Review your portfolio periodically
As an investor, your job does not end at merely choosing the right asset allocation mix and the right type of investments for your portfolio. It is important that you review your portfolio on a periodic basis so that you can remove any non-performer mutual fund schemes, if any.