Most of us leave our investment decision to brokers which also include the SIP investments that we make. The broker comes, tells you a few fund names that you should invest in, tells you the benefits of investing in the fund through sip investments and not lump sum investments and then lures you to buy some.
After this, his task is done. Your money keeps getting debited from your account each month, and the sip investments buy units in mutual funds for you. Tracking how the mutual fund is performing, whether to hold on to the fund or to get out of the fund and which fund to access in the case of an emergency is now all your responsibility.
This has become the fate of most investors today who do not do their own research but blindly believe in someone to help them make their investment choices. The process of SIP investments looks easy, but at the end, till you do not know what you are doing, there is nothing easy in the world. Most of the investors end up buying a number of sip investments which also include some tax saving funds. This leaves them bothered and totally hassled out in the case of an emergency or when in need of their own money.
What Are SIP’s?
To begin with, it is important to know that SIP investments are not any kind of investment. It is just a way to buy a mutual fund scheme where instead of buying bulk units, you spread out your purchase by buying smaller units in regular time periods. The scheme could include bonds, debts, balanced funds etc. This is good because one should diversify their investment because it will evenly spread out the risk. However, when it comes to over-diversification, it is as bad as not diversifying at all.
Your portfolio could have investments into equities which are high-risk investment as well as debt funds which are low risk. It is good that you have a total of just 3-4 mutual funds at one time. These, however, should be diversified into various asset classes to average out the returns. Having a few mutual fund schemes lets you keep track of the funds and so you are aware of which to take out in the case of need. This also lets you organise your funds better.
Every mutual fund gives a folio number which makes it easy for the investor to check the performance of the mutual fund by viewing the statement. So in case, you have four mutual fund schemes where you invest in, then you could increase or decrease the amount of the fund, top up with more money or reduce the amount you invest into the fund each month.
Benefits of Organising the Investments
Better organising of the mutual fund schemes lets one handle the funds better. It keeps one aware of the funds that are bought for tax saving purposes so that one does not take it out and lose out on the tax benefits.
Sip investments are a great way to buy mutual funds. The market is volatile, and when you buy a mutual fund scheme as a lump sum, then there are chances that you may have brought the units when the market was at its peak. The result of this is that when the market falls, you need to wait for years together to see the investment return back to the buy price, forget to give any profits.
However, the SIP investments let you save some money towards mutual funds each month. You thus save a fixed amount of money with which the mutual fund units are brought. You may have brought a few units when the market was at its peak and a few units when the market had bottomed out. This result in spreading out your investment and thus your investment gets averaged out.
Sips are a smart way of investing in the highly volatile market. However, it is important that you choose the right SIP plans, do not flood your portfolio with many sip schemes which will make it difficult to track and also keep a check on the performance of the SIP, so you know when to pull your money out of the fund.