A systematic investment plan (SIP) is among some of the most popular ways to invest in the stock market. SIP — which enables an investor to put a fixed amount of money in a mutual fund at regular intervals — is an effective way to take a rather financially-disciplined approach to investing, without having to devote more time to the market regularly, say financial planners. In SIPs, a fixed amount of money is deducted from the investor’s account at regular intervals, say weekly, monthly, quarterly or annually, and invested in a desired mutual fund scheme.
Why SIP?
Financial experts say that using SIP correctly can help an investor get the desired result in a systematic and effective way. Here are some of the common tips shared by financial experts for a successful SIP:
1. Be watchful of inflation
Inflation is one of the crucial factors investors need to consider to fulfill their future aspirations, and for that, it is necessary to review the investments from time to time. It is an important step in ensuring that the plan is headed in the right direction.
2. Shore up your investment, if needed
This is a precursor to reaching a financial goal you have set for yourself within due time. For instance, you can use opportunities such as a salary hike or a reduction in your liabilities to increase your investment. A fall in the market may increase the number of units you can buy of a desired mutual fund.
3. Know your risk tolerance
Before starting a SIP, it is crucial to know your risk tolerance. This will help you take the right decision as an investor. Risk tolerance can change in tandem with market volatility; while some many find it difficult to continue their investments in a situation of weakness in the market, others may not. It is important to review your plan in such instances, and act accordingly. Remember: You can pause your SIP and withdraw the funds if needed.
4. Be aware of your financial goal
Financial goals can vary from person to person, in both time and value. It is important to keep a tab on your financial goal, and make changes in your SIP accordingly. To avoid being stuck in a financial trap, the investor must be conscious of the SIP commitments, and restrict to the amount that best suits risk tolerance.
5. Seek professional help
Whenever reviewing your investment plan, always take advice from a professional financial advisor. It never hurts to take a second opinion on any decision taken in the past to best stay on the path of wealth creation.
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