ABC of SIP Mutual Fund Investing
A : Act early
Give your money time to grow. See the example below it is self-explanatory.
if your goal is to Save around 14 Lakh rupees for a goal which is 30 years ago. Let’s assume the rate of return is constant 12% per annum compounding. Here is what will happen if you invest today you will have to put in Rs. 2000/- per month in SIP however if you start saving 5 years later you will have to invest Rs. 4279/- to accumulate the same amount. So plan for expenses as early as possible. Expenses like retirement, child’s education/marriage etc can easily be planned in advance.
B: Back fund selection with a goal and research
Buy funds only after you have set a goal. A goalless investment may not meet your needs when you need the money. Hence do not just start a SIP of a random amount but plan the expense and invest accordingly. The choice of funds to invest would depend on multiple factors like your risk appetite and time you have in hand for your goal. Consult your financial advisor to get the details. If you are planning to do it yourself make sure you read well about the investments that fund houses make and keep reviewing your goal and investment at least once a year.
C: Continue investing even when markets crash or stay low
Market crash and low is your friend when you are in accumulation(investing) phase. When markets are low your SIP amount will fetch you more units of the mutual fund. Once you keep investing regularly you would have accumulated large amount of units that you can redeem near to your goal when markets are doing well. Remember selecting the point of exit is as important as point of entry.
TIP for a conservative investor: Try to exit the equity mutual fund investment 1-2 years before the date you ned money for the goal. You can park this money in debt or arbitrage funds to minimize losses of any. This way you will lose the rally if any in 1-2 years but you will still save your corpus if the market crashes.
Photo by Shardayyy