Investing through a systematic investment plan helps in tackling stock market complexities and gain good yields over a long-term period
For a long-term equity investor, the Systematic Investment Plan (SIP) has emerged as one of the best ways to build wealth through smaller contributions. Considering the ever increasing role of equity funds in most investors’ portfolios across various age groups, risk profiles and income groups, a systematic approach goes a long way in allowing them to tackle the complexities associated with stock market investing.
For all those investors who are looking to invest in equities but are feeling restricted in terms of money available for investment, a Systematic Investment Plan (SIP) can help in realising their goals. Apart from helping in building a corpus through smaller contributions in a disciplined manner, SIP also ensures that one resists the temptation to time the market. Moreover, one benefits from ‘averaging’ too as the money is invested at different market levels. While SIP is a simple and disciplined way to invest in equities, investors need to follow certain basic rules to get the best results. A haphazard approach can derail the process and that could either result in a shortfall or inability to fulfill some of the objectives. Here is what investors need to do to get the best out of a SIP:
Budget It Well :
Be careful while deciding on the amount of SIP. It is important to do some budgeting before deciding on the amount of SIP. An aggressive approach can prove to be counter-productive as the resultant financial crisis may compel you to stop the SIP midway. Budgeting will ensure that you commit only long-term money for SIP which is the key to success for an equity investment.
Think Long-Term :
Carry on with the process irrespective of the market conditions. Equity investments, irrespective of whether one makes a lump sum investment or through SIP, require long-term commitment. Many investors get panicky whenever the market witnesses a downturn and discontinue the SIP. They need to realise that a falling or a volatile market benefits them in the long run as they get more units for the same amount. Therefore, it makes sense to continue investing by ignoring short-term volatility.
Raise The Bar :
Increase the amount of SIP as the income levels rise. Though it is necessary to be conservative at the start, it is equally important to increase the monthly contributions as your income level goes up. So, while on one hand it will ensure that you avoid wasteful expenditure, on the other you will give yourself a chance to have a bigger corpus in the future. In case you increase the number of SIPs, make sure that these have different investment dates so as to benefit from the volatility during the month.
Performance Counts :
Invest in diversified equity funds. A good quality equity fund is likely to do well steadily over time, overcoming most temporary setbacks. Therefore, the focus should be on diversified funds as they are best suited for long-term investing. While selecting funds, the focus should be on their performance and the risk taken to deliver those returns, consistency in the investment strategy and the level of diversification. If you find it difficult to select the right funds, take the help of an advisor who can recommend funds on these parameters.
Check The Options :
‘Growth’ option provides power of compounding. Choosing an option is as important as selecting a good fund. Therefore, consider various aspects related to tax, rebalancing and time horizon before deciding one. Since the objective of investing through SIP is to build wealth over time, the ‘growth’ option improves the chances of success as it offers a compounding effect. Remember: A disciplined investment approach coupled with a long-term outlook can not only make you a better equity investor but also go a long way in ensuring success.
~
Source : DSIJ
For a long-term equity investor, the Systematic Investment Plan (SIP) has emerged as one of the best ways to build wealth through smaller contributions. Considering the ever increasing role of equity funds in most investors’ portfolios across various age groups, risk profiles and income groups, a systematic approach goes a long way in allowing them to tackle the complexities associated with stock market investing.
For all those investors who are looking to invest in equities but are feeling restricted in terms of money available for investment, a Systematic Investment Plan (SIP) can help in realising their goals. Apart from helping in building a corpus through smaller contributions in a disciplined manner, SIP also ensures that one resists the temptation to time the market. Moreover, one benefits from ‘averaging’ too as the money is invested at different market levels. While SIP is a simple and disciplined way to invest in equities, investors need to follow certain basic rules to get the best results. A haphazard approach can derail the process and that could either result in a shortfall or inability to fulfill some of the objectives. Here is what investors need to do to get the best out of a SIP:
Budget It Well :
Be careful while deciding on the amount of SIP. It is important to do some budgeting before deciding on the amount of SIP. An aggressive approach can prove to be counter-productive as the resultant financial crisis may compel you to stop the SIP midway. Budgeting will ensure that you commit only long-term money for SIP which is the key to success for an equity investment.
Think Long-Term :
Carry on with the process irrespective of the market conditions. Equity investments, irrespective of whether one makes a lump sum investment or through SIP, require long-term commitment. Many investors get panicky whenever the market witnesses a downturn and discontinue the SIP. They need to realise that a falling or a volatile market benefits them in the long run as they get more units for the same amount. Therefore, it makes sense to continue investing by ignoring short-term volatility.
Raise The Bar :
Increase the amount of SIP as the income levels rise. Though it is necessary to be conservative at the start, it is equally important to increase the monthly contributions as your income level goes up. So, while on one hand it will ensure that you avoid wasteful expenditure, on the other you will give yourself a chance to have a bigger corpus in the future. In case you increase the number of SIPs, make sure that these have different investment dates so as to benefit from the volatility during the month.
Performance Counts :
Invest in diversified equity funds. A good quality equity fund is likely to do well steadily over time, overcoming most temporary setbacks. Therefore, the focus should be on diversified funds as they are best suited for long-term investing. While selecting funds, the focus should be on their performance and the risk taken to deliver those returns, consistency in the investment strategy and the level of diversification. If you find it difficult to select the right funds, take the help of an advisor who can recommend funds on these parameters.
Check The Options :
‘Growth’ option provides power of compounding. Choosing an option is as important as selecting a good fund. Therefore, consider various aspects related to tax, rebalancing and time horizon before deciding one. Since the objective of investing through SIP is to build wealth over time, the ‘growth’ option improves the chances of success as it offers a compounding effect. Remember: A disciplined investment approach coupled with a long-term outlook can not only make you a better equity investor but also go a long way in ensuring success.
~
Source : DSIJ
