Even as investors continue to invest via SIPs, with inflows through the route touching all-time high levels in 2018, 2019 will not be very different. We take a look at key things to keep in mind while investing through SIPs.
By- Ashish Nasa
Even as investors continue to invest via SIPs, with inflows through the route touching all-time high levels in 2018, 2019 will not be very different. Over the last few years, popularity of SIP as a regular monthly investment option has grown exponentially. From a largely unknown instrument, it has now become a household name – as popular as probably RDs (Recurring deposits) a decade ago. If data from Banks is put in public domain, it may not be surprising that SIP growth rates could be even higher – and why not – after all they are tax efficient, well-diversified and offer higher potential returns (although with higher volatility).
By nature, SIP is a Long Term investment option designed to give all the benefits of equity market, like higher return & lower taxes, while removing its main problem of Market-Timing. The biggest strength of this instrument is its Simplicity and Consistency – which makes it highly superior investment option for an average investor with monthly savings.
Given the nature of this investment option, investors should keep following in mind while investing in SIPs:
- Tag SIP with a financial goal – Whatever be the goal – Retirement, Child Education, Housing or World Tour – tag one of it right at the start of SIP itself. The whole tagging process adds purpose to one’s investment and gives greater control over finances. There are various systems available today at Very Low to Zero Cost which offer this facility.
- Choose a well-diversified fund with consistent high rating – Ratings are available in the public domain at a click of Google Search. One can follow which-ever rating model s/he is comfortable with – just ensure that the Fund is highly rated for a consistent period of 3 years or more.
- Don’t miss the freebies – 3 out of Top 5 Mutual Funds in India offer complimentary Insurance Term Cover for investors in the age bracket of 18-55 years by allowing participation in Group Insurance Plan. It’s available absolutely free for most of their investment schemes – Why miss it?
- Do not track excessively – Avoid falling into the trap of tracking SIPs every week or every month irrespective of what happens to the market. When tracked excessively, the temptation is higher to take some kind of action and that’s when this instrument loses its core strength i.e. Consistency. Tracking once in a year (or max. Half Yearly) is good enough as it goes with the nature of this investment
- Do not skip any instalment especially when the market is down – whatever may be the analyst opinion. When one skips an instalment, s/he is trying to time the market thereby nullifying one of the main advantage of SIPs. This mode of investment works to investors’ advantage when the market in volatile as it helps averaging the unit cost of investment.
While investing in SIPs, one should treat this investment like RD’s especially in terms of seriousness and investment management – the above five points come majorly from that. Although the volatility in SIPs is higher, but the potential returns could be well worth it!
(Ashish Nasa is the Head of Wealth Management, NRI and Relationship Banking at Equitas Small Finance Bank. Views expressed in the article are author’s own)