How to make the most of Mutual Fund, SIP: Top tips

December 14, 2019 11:00 AM

Mutual Fund, SIP investment tips: To ensure financial security in the long-run, investing can be beneficial.

Mutual Fund, SIP investment tipsCheck Mutual Fund, SIP investment tips

Mutual Fund, SIP investment tips: To ensure financial security in the long-run, investing can be beneficial. The money generated from the investment can provide financial security and income. Enjoying the present is good, but living for the future is also essential. Investing can help in securing that future. In fact, an early investment allows developing the habit of controlled spending by focusing on budget and cutting expenses when needed. To generate future revenue, the best way is to analyze the mechanism of investment. To lead a comfortable lifestyle or to fulfill the dreams, it is essential to invest the money smartly to get good returns out of it.

For those who are looking to grow their savings over the long term can opt for mutual fund investment. Flexibility in choosing industries is one of the most attractive features of mutual fund investment. It is a pool which collects money from several investors who share a common investment objective. Then a bank/financial institution invests the money in equities, bonds, money market instruments or other securities. The income generated from this collective investment is distributed proportionately amongst the investors.

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Mutual Fund Investment Tips

  • Researching, choosing best funds, building solid, trustworthy portfolio and sticking with it is the most effective and profitable method for investing successfully into mutual funds.
    It is essential to understand how mutual funds can be classified based on asset class and further by style, objective or strategy aids in choosing the best funds for diversification and asset allocation.
  • Examine the risk tolerance before investing the mutual funds.
  • After determining the level of risk tolerance, consider the proper asset allocation.
  • Variety of choices in mutual funds and its potential to make needless mistakes. Best choice for investment is a no-load fund. An investor can choose by using fund screener or by comparing the performance to a benchmark. Make sure to select a diverse selection of funds which satisfies the risk tolerance and investing goals.
  • In mutual funds, past performance may not guarantee the future result but knowing how to analyze performance, what to look for, and what to avoid, will help in better-inform the investment decisions.
  • Taxes? Mutual funds investing can minimize or even help in avoiding taxes. The basic knowledge and practice on mutual funds taxation can help in increasing an overall investment portfolio returns.
  • Periodical monitoring is essential as it allows the investor to figure out what type of investment is working well and who is not up to the expectation — these help in reconsidering the investment in that sector.

Systematic Investment Plan (SIP)

Investment which offers different mutual funds to investors, allowing them to invest small amounts periodically instead of lump sums is the work of Systematic Investment Plan (SIP). The investment frequency can usually be weekly, monthly or quarterly.

SIP has been gaining popularity among Indian mutual funds investors as it helps in investing properly without worrying about the market volatility and timing.

For a long-term investment, SIP offered by mutual funds is easier to understand, as an early investment result in maximizing the end returns.

Mutual Fund SIP investment tips

  • To receive a maximum return from SIP, make sure to invest for enough time, at least 10 to 15 years.
  • Giving all the money into one mutual fund can be risky. Instead, the investor should diversify the investment by putting into different funds, even in different sectors. It is always essential to have the second option if an entire sector fails to achieve so.
  • One of the key criteria for choosing a fund is past performance. It is essential to check its long-term performance. Sometimes a good performing last year might have a long history of poor performance which can put the risk of underperformance in future. Thus, it is important to identify based on at least 4 to 5 years of its performance. These can help in making a clear picture of the fund’s ability to perform in a difficult market situation.
  • Just like a student giving school exams every month, to measure academic growth, in SIP, one should keep on check at least once in 6 months to measure the performance of funds growth. These can give a clear picture of which funds are performing or not. Continuous downfall indicates the exit from that scheme and moves towards other funds or sector for a while.
  • The SIP investor decides to invest a small amount on a fixed date of each month without too much thinking about the market condition. This helps in developing the discipline of investing on a regular basis without taking too much risk at once. Instead of spending a lump sum at once, it is much easier to maintain step-by-step investment for the long run.
    Remember, investment in SIP is not suitable for people with unpredictable cash flow or people who cannot commit a fixed monthly investment.(By Rachit Chawla, Founder & CEO, Finway)

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