How to start SIP ? How to choose SIP ?
Lower and
upper-middle-class people, particularly those in service professions, often
dream of owning a spacious flat or independent house, providing quality
education for their children, sending them abroad for higher studies or
master's degrees, and hosting their children's weddings in prestigious hotels
or as destination weddings. However, dreams alone are not enough to achieve
these goals. To make these aspirations a reality, you need to plan
systematically and carefully. Finlifesecure
will explain how you can achieve all these goals.
Most people who want to
make systematic investments either invest directly by choosing mutual funds
without checking any background, or sometimes they see advertisements or images
on social media. These types of investments are very risky, and sometimes investors
do not achieve their goals or meet their expectations.
Investing without research
or relying on casual recommendations can lead to significant financial losses.
Many investors are swayed by attractive advertisements or social media posts
that promise high returns without fully understanding the risks involved. It's
crucial to perform due diligence by examining the track record of the mutual
funds, understanding the market conditions, and considering one's financial
goals and risk tolerance.
Systematic Investment
Plans (SIPs) are designed to help investors build wealth over time by investing
a fixed amount regularly, regardless of market conditions. However, choosing
the right mutual fund is critical. Investors should look at factors such as the
fund's past performance, the reputation of the fund manager, the fund's expense
ratio, and the consistency of returns.
Moreover, consulting
with a financial advisor can provide valuable insights and help tailor an
investment strategy that aligns with one's financial goals and risk appetite.
Educating one about the basics of mutual fund investments, reading up on market
trends, and staying updated with financial news can also empower investors to
make more informed decisions.
In summary, while
systematic investment is a powerful tool for wealth creation, it requires
careful planning, thorough research, and ongoing monitoring to ensure that it
meets the investor's objectives and minimizes risks.
Choosing right or best
Systematic Investment Plan (SIP)
Choosing a Systematic
Investment Plan (SIP) can be a strategic way to build wealth over time. Here
are the key steps to choose the right SIP:
Set
the Goals: Set your financial goals, such as buying a new
house in multi-storey or independent house, retirement planning, children’s
education etc., this helps you in selecting mutual funds that aligns with your
objectives and goals.
Risk
Tolerance: Understand your risk tolerance capacity. Equity
funds are riskier but offer higher returns, while debt funds are safer but
offer lower returns.
Time
Period: Decide on the investment duration. Longer time period
allow you to take more risks since market fluctuations even out over time.
Research:
Check at the performance of various mutual funds. Consider factors like past
performance, fund manager’s experience, fund house reputation, and expense
ratio.
Diversification:
Select different funds diversify your portfolio. A combination of equity, debt,
and hybrid funds can balance risk and return.
Investment:
Ensure the minimum investment required for the SIP fits your budget. Some funds
may have higher minimum investment amounts.
Expense
Ratio: Lower expense ratios can increase your returns over
time. Compare the expense ratios of different funds.
Past
Performance: While past performance is not a
guarantee of future results, it gives an idea of the fund’s consistency and
reliability.
Tax
Implications: Be aware of the tax implications of
your investments. Equity funds held for more than a year are subject to
different tax rates compared to debt funds.
Fund
Manager’s Experience: The expertise and track record of the fund
manager can significantly impact the fund’s performance.
Review
Regularly: Monitor your SIP investments periodically to ensure
they are on track to meet your goals. Make adjustments if necessary.
By considering these
factors, you can choose a SIP that aligns with your financial goals and risk
tolerance.
Example:
Choosing a SIP for a
Long-Term Goal
1.
Define Your Goals
Goal:
Save for a child's higher education.
Time Horizon: 15 years.
2.
Assess Risk Tolerance
Risk Tolerance:
Moderate to high. Willing to take some risks for higher returns since the time
horizon is long.
3.
Research Funds
Types of Funds:
Considering equity funds due to the long-term horizon.
Potential
Funds:
Large
Cap Fund: Less volatile, invests in large, established
companies.
Mid
Cap Fund: Moderately volatile, invests in medium-sized
companies with growth potential.
Balanced
or Hybrid Fund: Combines equity and debt to balance
risk and return.
4.
Check Performance and Details
Fund A: ABC Large Cap
Fund
Past 5-Year CAGR: 12%
Expense Ratio: 1.2%
Minimum SIP Amount :
Rs. 5000.00
Fund Manager: 10 years
of experience
Fund B: XYZ Mid Cap
Fund
Past 5-Year CAGR: 15%
Expense Ratio: 1.5%
Minimum SIP Amount: Rs. 5000 per month
Fund Manager: 8 years
of experience
Fund C: LMN Hybrid Fund
Past 5-Year CAGR: 10%
Expense Ratio: 1.0%
Minimum SIP Amount: Rs.
10k per month
Fund Manager: 12 years
of experience
5. Diversify
Investment Plan:
50% in ABC Large Cap
Fund
30% in XYZ Mid Cap Fund
20% in LMN Hybrid Fund
6. Calculate Monthly
Investment
Total Monthly Investment:
Rs. 10000.00
ABC Large Cap Fund: Rs.
5000.00
XYZ Mid Cap Fund: Rs.
3000.00
LMN Hybrid Fund: Rs.
2000.00
7. Check Expense Ratios
and Fees
Total Weighted Expense
Ratio:
Large Cap: Rs. 5000 x
1.2% = 60
Mid Cap: Rs. 3000 *
1.5% = 45
Hybrid: Rs. 2000 * 1.0%
= 20
Total: Rs. 60 + 45 + 20
= 125
8.
Tax Implications
Equity Funds: Held for
more than a year, subject to long-term capital gains tax.
Hybrid Fund: Proportion
of equity and debt components to be considered for taxation.
9. Monitor and Review
Review Frequency:
Annually.
Adjustments: Increase
SIP amount with salary hikes or bonuses, switch funds if performance drops
significantly.
Final
Decision
Start a SIP with Rs.
10000.00 per month, divided among the three selected funds, and review the
portfolio annually to ensure it stays on track to meet the goal of funding the
child's higher education. By following
this structured approach, you can choose a SIP that aligns with your financial
goals and risk tolerance.
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