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Sunday, December 25, 2016

Why MF SIP?

Invest Mutual Fund SIPs Online

An SIP is a financial planning tool offered by mutual funds that allows you to invest small amounts at regular intervals over a long period. It also allows one to use the power of compounding to generate big returns in a portfolio. 

In the equity market, the general approach to investing is to time the market whereby one tries to buy a stock or an index at a certain level and book profit when it has run up significantly. 

That approach often leads to "common mistakes in asset allocation by common investors, who tend to buy high (caused by exuberance of a bull market) and sell low (due to the hopelessness caused by a bear market) 


An SIP can address this wrong approach to asset allocation by majority investors in a fool-proof way. Common investors should never try to time the market. All they simply need to keep doing is maintain the regular SIP payments in order to completely negate the impact of wrong timing that can hit return on investment 

SIP or no SIP, equity investment will always be considered a game of deep-pocketed people. For the ordinary middle-class Indian, the stock market will perhaps be the last place to make their retirement planning fool-proof. 


Of the many benefits of SIP investing, one is that you can start an SIP by investing as low as Rs 500 a month, which allows even a small investor to build long-term wealth. An SIP can allow investors to invest in a regular and disciplined fashion 


Investors should first chalk out their long-term financial plans to identify how much mutual fund investment one needs to make every month and what should be the debt-equity mix 

The next step is to decide on the right fund house and fund manager. They are the guys who will be looking after your money every single day till you redeem and, therefore, they are like the coach on who you want to entrust your life's savings. 

A lot of time and energy is spent in this process. Once the basic plan is inked, it is really a simple matter of unemotional execution by investing the routine SIP instalments on the scheduled dates 


SIPs are not just about pouring all the money into the equity market. The mark of a great portfolio is distribution of risk and diversification across asset classes. 

One important element in mutual fund investing is the split in asset allocation between equity and debt. This needs to be reviewed every few years to see if the risk profile of the investor has changed and, hence, allocation split needs to be changed 


SIP investing is not about putting in some money and forgetting it, the way Warren Buffett will have you do it. It is more like being a gardener, who looks after his plants almost every day just to ensure weeds are not cropping up. 

Investors will do well to monitor their investments over a medium to long-term and take a course correction if needed 

Investors need to manage their investments at an overall portfolio level instead of approaching them in a piecemeal fashion. SIPs are constituent of such a portfolio and as such require attention from time to time. An investor must, therefore, monitor the performance of an SIP with reference to its benchmark and ascertain the long-term wealth creation potential that it carries 


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