Goals come in many forms. They can be short-term or long-term. Travelling to that exotic beach locale, owning the latest Apple gadget, going skydiving, eating at gourmet restaurants, getting a higher education degree, or even buying a Vera Wang wedding dress are goals that require money. And more often than not, we don’t always have the funds ready when we need them.
A great answer to this can be investing wisely in SIPs. Believe it or not, around 9400 mutual funds in the USA in 2017 alone reached the whopping figure of $18.75 trillion in a year. From putting aside higher education funds to building up capital for your boutique bakery business, you can invest in SIPs for a lot many reasons. They allow you to set aside some funds regularly that you can redeem after a point of time, along with the compound interest on them.
But trusting just about anyone with your money is nothing short of tomfoolery. Surely you would want to know more about investing in SIPs, right? Read on, and you will get an overview on the various kinds of SIPs, and how to choose them wisely.
A SIP here, a SIP there – Types of SIPs
SIPs are generally of four types, and allow four different kinds of investment patterns.
- Top-up SIP: You can increase the investment amount in this kind of SIP at regular intervals. That, in turn, allows you to get optimum rewards when an SIP shows good returns. You can accordingly invest more in the same when the time comes.
- Flexible SIP: Flexible SIPs let you increase or decrease your investment amount. This way, you can design a plan to invest in SIPs as per the cash flow you receive. It lets you structure an agile investing model, and that’s where they get their name.
- Perpetual SIP: SIPs with no specified mandate or ending date are called perpetual SIPs. They allow you to take out the money at any time you want. In case you achieve your financial goals sooner than you expect, you can withdraw the funds from perpetual SIPs.
- Trigger SIP: Trigger SIPs are not highly recommended by fund managers. Investing in these will not require in-depth knowledge on mutual funds or investing. They allow you to set start and expiry date, and index level, among others.
Why you can trust SIPs to bring you those greens
Sure, everyone wants their money to be doubled or tripled through investment schemes. But that is hardly ever the case. Setting realistic expectations, investing in a reliable SIP, and having a road map for the future comes hand-in-hand with your investing plans. However, before you take the leap of faith, check out these benefits of investing in an SIP for optimum financial growth.
Enables you to take a disciplined approach towards saving
As investing in an SIP requires you to link your active bank account to the plan, there is no question of lagging behind in payments. The money that you are supposed to invest in the SIP, gets deducted from your account every month. If you are a millennial struggling with finance management, this can be a huge plus for you.
Lets you invest with even a minimum investment plan
Planning a budget and investing does not have to be a pricey affair when you have SIPs. They give you the option of increasing your investment amount as time passes. Plan your budget, and get hold of a reliable fund house, and you can secure a trusted investment plan through an SIP right away.
Offers the flexibility of opting in or out at any time
As you might know by now, SIPs don’t require a lock-in period. So you can access the funds at any time you want. Along with providing a stash of cash for emergencies, it also lets you opt out of the plan at any time. You can, thus, model and refurbish your financial plan according to the cash flow.
Ensures maximum growth of wealth through the power of compounding
The ever-fascinating concept of compounding comes as a crucial part of SIP. The interest that you earn on the invested amount is compounded and accumulated for a long time. You are most likely to receive much greater rates on interest through compounding. Hence, SIPs can offer a higher return rate than most other forms of traditional long-term investment plans.
Offers double the returns than a traditional FD
When you go over the returns, SIP investments have a much higher rate when compared to traditional FD investments, irrespective of fluctuations in the market. Long-term returns of SIP show much better results than FDs. So it is only wise to go for an SIP over an FD, when it comes to investing for the future.
How to know which SIP is best for your investment plans
Here are a few things you should keep in mind when choosing the right fund for your SIP investing patterns.
Bring some discipline into your life
SIPs look easy enough to get you started. But once you are in the process of investing, it might get difficult to keep going. Invest in regular intervals. It brings down the risk of volatility. Steer clear of jumping bandwagon with every new market trend. SIPs offer promising returns if only you stick to it long enough.
Be clear about your investment objectives
Before you invest, ask yourself the main reason that you are choosing to do so. Is it for a house you plan to buy in the future? Is it for a trip around The Continent? Is it part of college funds for your pianist daughter? Knowing why you are investing will help you choose the proper kind of funds for SIP. It will also help you draw out a road map for investing, including the period for which you wish to invest.
Know all you can about the fund house
Fund houses usually manage our investments on our behalf. So it is best to know who you can trust with your money. The decisions for investing your money are sure to affect the outcome of your investment. So, learn all you can about the chosen fund house. Get your hands on info like what kind of investment approaches it takes, the types of funds on offer, the schemes it provides for potential investors and the range of the financial products it offers.
Track fund performance carefully before investing
No matter how glammed-up the fund house, fund performance is all that matters at the end of the day. Before you invest, read up all you can regarding the performance of the funds. Look out for positive alpha signifies in the performances, and pick the ones that have more of those. Watch out for the funds that have volatile returns for they might not guarantee the results you are expecting.
Keep a tab on exit load and recurring expenses
Exit load is the amount that you must pay the fund house at the time of taking out the money. The charge on redemption or exit load is significantly high in some of the fund houses. Make sure you know how much you are going to give away at time of taking out your money when it’s matured. On top of that, keep an eye on the recurring expenses of the fund house as well. An annual recurring expense as low as 0.20% can have significant effects on your funds over a ten-year period.
Get hold of a penny-wise fund manager
Finally, get a fund manager that you can rely on. They should have in-depth knowledge of your investment plans and suggest the best ways to grow your wealth. Don’t leave your hard-earned money at the disposal of the whims of a fund manager, who think they know better than you. They should be the ones you hold on to during difficult times in the market. A good fund manager will let you know how to make the most of even the worst of times.
From hiring a fund manager you can trust to regularly checking the fund performances, there’s a lot that you can do to pick an SIP wisely. Managing money is not easy for everyone, and knowing just what to expect beforehand helps tonnes with your investment decisions. If you are careful enough, SIPs will surely help you realize your financial goals, no matter how big or small. Godspeed!