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Several investors shy from investing in the markets as they are afraid to park a lumpsum amount of money in the markets in one-go. Also, the added pressure of efficiently timing the markets make it worse. This is when SIP or systematic investment plan come to rescue. The SIP mode of investment allows investors to invest a small, insignificant sum of money in desired schemes at regular intervals. This also helps to negate the need to time the markets. In this article, we will understand a few things that new SIP investors must keep in mind before investing in the markets.
Things first-time SIP investors should be aware of to earn substantial returns
Following are a few things that novice investors must consider before investing in mutual funds through SIP mode of investments in hope of earning higher returns:
- Understand your financial objectives
Before you begin to invest in mutual funds through SIP mode of investment, it is important to understand the objective behind your investments. It is because one should never invest in SIP for the sake of investment. Realising the objective behind your investment will help you to evaluate the appropriate investment amount, investment duration, type of SIP, among other parameters. Depending on the different investment goals you wish to achieve, you might consider investing in multiple SIP mutual funds to cater to your varying financial goals.
- Choose the right type of investment carefully
Indian markets are full of different types of investments available to an investor to cater to their varying investment needs. Depending on certain factors such as your financial goals, risk profile, investment duration, income level, return expectations, liability, age, financial responsibilities, etc. you might choose the right type of mutual fund suitable for your investment portfolio. For instance, if you are comfortable with higher levels of risk in lieu of higher returns, you might consider investing in stocks or equity mutual funds.
- Diversify your investment portfolio
As an investor you must never invest all your asset classes in a single asset class or type of investment. It is always a good idea to diversify your investment portfolio across asset classes, locations, sectors, etc. Diversifying your investment portfolio can significantly help you to reduce the risk exposure of your investments. However, in the name of diversification, make sure that you do not over diversify your portfolio which might not fulfil its job.
- Beat inflation with the help of returns on your investments
Several new investors often forget to factor in the rate of inflation while planning their investments. To get a truer and clearer picture of your investments, make sure that you factor your investments against the appropriate rate of inflation. This is because inflation has the power to eat away a huge chunk of your savings and returns. Several SIP return calculators offer investors with the option to adjust for inflation to help them understand the value of their investments at the end of the investment tenure.
- Do not forget to track your SIP investments regularly
Your job as an investor does not end at merely investing in the right SIP mutual fund schemes. It is essential that you continue to track your investments on a periodic basis. This will help you to distinguish under-performing assets and exit these mutual fund schemes if they continue to offer deteriorating returns for a considerable period.