Since time immemorial, small and regular savings have been the best mode of investment. They are light on the pocket and regular savings inculcate investment discipline, which is crucial for creating wealth in the long-term.
Today, you may choose from a large number of investment options such as stocks, debt, derivatives, and deposits. Based on your personal risk appetite, you may choose one or more of these options to invest your savings. On one end, stock investing delivers high returns but is very risky. In comparison, deposits are safe instruments that provide guaranteed albeit low returns.
To achieve risk-return balance, Mutual Funds (MFs) are an excellent option. MFs invest in a diversified portfolio of equities and debt, thus, reducing the potential risk while delivering good returns.
An even more beneficial means of investing is through a Systematic Investment Plan (SIP). Under a systematic plan, you may invest any amount (starting from INR 500) at a particular date in your chosen MF schemes. These plans are ideal for goal-based investing and have several benefits.
Here are three ways to maximize your returns on systematic investment plans.
- Link systematic plans with financial objectives
Every investment must have a specific purpose, such as retirement planning, taking an international holiday, or children’s higher education. With a clear goal, you are able to determine how much you must invest each month. Furthermore, it allows you to monitor your progress towards achieving the financial goal.
Goals may be short-term, medium-term, and long-term. Defining the objectives allows you choose the right mix of different asset classes to ensure you are able to achieve your goals. To meet short-term goals, investing in safer debt-related products is recommended. However, if the investment horizon is longer than 10 years, opting for more equity products is recommended because long-term allows you to assume higher risks.
- Enhance the annual investment amount
A SIP gives you the option of increasing the amount as per your financial condition. You should make the most of this facility and increase the investment amount every year in accordance with the increment in salary.
Step-up investing has several long-term benefits. Firstly, it helps you build a significant corpus over a longer period. Furthermore, it ensures you do not incur unnecessary expenses as your income increases. Lastly, a step-up systematic plan is a beneficial tool to start with a small amount even when you do not have a higher income.
- Stagger the various systematic plans
Fund houses have specific dates when they debit your bank account with investment amount. It is recommended you stagger the dates on different plans for maximum benefits. This ensures you are able to retain some liquidity in your account because not all the cash outflows occur on the same date. Furthermore, staggering the investments reduces the risk of adverse market conditions to maximize your returns.
Regular monitoring your investments is very important. During the review, ensure the funds’ philosophies match your financial objectives. Secondly, check if the accumulated corpus is as per plans and will meet the specified goal. Finally, check the funds’ performances and make necessary changes.
Start a systematic investment plan today and achieve your financial goals.
