Three Ways to Turbocharge Your SIP Investments in 2018
Mutual Fund Systematic Investment Plans have picked up pace dramatically in 2017. It is estimated that more than Rs. 5,000 Crores of household savings now flow into various mutual funds schemes monthly, via the SIP route. A multitude of factors have collectively contributed to this – the increasing financialization of savings that followed demonetization, the fall in demand for real estate as an asset class, and the steady drop in returns from fixed deposits, postal schemes, and government bonds, to name a few.
The Mutual Fund distribution industry has played its part too. Amidst the growing ubiquity of the ‘Mutual Funds Sahi Hai’ slogan devised and promoted by AMFI, many online SIP investment portals have come up, allowing investors to begin their Mutual Fund SIP investments with great ease. These initiatives have improved the penetration of Mutual Fund SIP’s within cities beyond the Top 15 cities (collectively known as ‘B 15’ cities) as well; not long ago, these regions didn’t look beyond LIC.
If you’ve recently started your Mutual Fund SIP, here are 3 simple ways in which you can ‘turbocharge’ them to create long-term wealth for your future goals.
Step up by at least 10% Annually
The seemingly banal practice of stepping up your Mutual Fund SIP investment amount by just 10% per annum can have an explosive impact on your long-term wealth creation from them. What good would stepping up my SIP of Rs. 20,000 to Rs. 22,000, you might ask? You’re right to assume that this would not result in a large difference in the short run; however, consider how the numbers stack up for long term SIP’s such as the ones you’ve earmarked for your retirement 25 years hence. A SIP of Rs. 10,000 per month, growing at 14% per annum, would result in a corpus creation of Rs. 2.18 Crores. The act of stepping up this SIP by 10% per annum would raise this figure to 4.68 Crores! For best results, it’s best to inculcate this habit early on in your investment cycle, while the base is small and the step up itself won’t pinch your pocket that much.
Be a Dravid, not a Sehwag
When it comes to Mutual Fund SIP investments, it’s a lot better to inculcate the tenacity, resilience, and consistency of Rahul Dravid than to aim for the swashbuckling style of Virender Sehwag. For this very reason, it’s important to begin with an amount that you’re absolutely confident that you can continue with unbroken, for the entire planned duration of the SIP. There’s very little benefit in starting off with a large amount and then stopping the SIP’s midway or redeeming your accumulated corpus frequently. Doing so will seriously jeopardize your chances of creating wealth from your SIP’s. Start with an amount that balances out your lifestyle and your savings neatly, and maintain a disciplined approach to your SIP’s thereafter. Make sure your account is funded on the SIP date, just as you would with an EMI.
Don’t Overthink it
A common mistake people make with respect to their Mutual Fund SIP investments is to overthink it. Questions such as ‘is the market too high?’, ‘should I wait for a better time?’, or ‘should I pause them for a while as markets look ripe for a correction?’ do not apply to Mutual Fund SIP’s. Trying to time your SIP investments is a futile act, and will negatively impact your returns eventually. The very essence of Mutual Fund SIP investing is to let the markets run their course and to benefit from their inherent volatility. In fact, the most opportune time to keep your Mutual Fund SIP’s running is when markets correct heavily; during these phases, you’ll wind up accumulating a large number of units, which will amplify your long term returns greatly.