How to maximize your Mutual Fund SIP Returns


With AMC’s, Advisors and industry bodies coming together to create mass awareness about Mutual Fund SIP’s in the past two years, they’ve resultantly witnessed windfall inflows. It is estimated that nearly 7 lakh new SIP’s are now being added every month. Falling interest rates on traditional investments, and increasing knowledge regarding the futility of traditional Life Insurance policies as long-term investment avenues, have served to further bolster interest in Mutual Fund SIP’s.

Whether you’ve recently started investing into Mutual Funds via Systematic Investment Plans, or have been doing so for some time now, here are three tips to optimize your investment experience.

Map Your SIP’s to Your Future Goals

We all have important short-term and long-term goals in our life. Perhaps you’d like to buy a new car, travel with your family to an exotic foreign destination or upgrade your living quarters. Further down, maybe you’d like to buy a new house or send your child off to a fantastic college. When you finally hang up your work boots after years of toil, you’d most likely want to be in a comfortable financial position. Mutual Fund SIP’s work best when they’re mapped directly to a well-charted roadmap of your future goals. Doing so enforces more savings discipline by ensuring that you skip fewer installments, redeem less money from your goal based savings, and regularly step up your SIP amounts. Additionally, goal mapping serves to automatically align your choice of Mutual Fund SIP to your time horizon, above all else. For instance, you could save in aggressive small & mid cap funds for your retirement which could be a couple of decades down, but restrict yourself to short-term debt funds for your family vacation goal, which may be just two years away. In this manner, you’ll be controlling the risks in your portfolio smartly, while ensuring that you reap the rewards of compounding in the best possible manner.

Step Up Your SIP’s Regularly

When it comes to Mutual Fund SIP’s, there’s no reason for you to have to start off with a colossal monthly outflow that’ll hamper your peace of mind and squeeze your lifestyle too much. Start off with what is comfortable – or with whatever you’d like to test the waters with. However, the one thing you should avoid is to become passive with your monthly SIP amount, as the difference that a periodic step-up can make can be quite phenomenal over the years. Make sure you increase your monthly SIP amounts in tandem with increases in your own fixed pay. In fact, you might want to discuss an initial plan and a step-up plan with your Advisor, right off the bat. Having such a framework in place will go a long way in ensuring that you stay the course and avoid the temptation to inordinately step up your lifestyle expenditures every time you receive a bump up in your pay.

Rebalance Your Accumulated Lump Sum Periodically

While there are some merits to the “SIP it, shut it, forget it” school of thought that expounds that one should just start SIP’s and do nothing thereafter, there’s a strong case in point for an annual rebalancing of the accumulated lump sum. For instance, you may have started 100% Equity oriented SIP’s, but your ideal asset allocation, basis your time horizon and risk profile, may be closer to 80:20 in favor of equities. Additionally, market conditions may have evolved since the time you started your SIP’s, making it risky to have 100% of your holdings into equity based investments. In such scenarios, switching a requisite amount of accumulated capital from equity to debt would make a lot of sense from a risk control standpoint; and lead to disciplined, periodic profit booking. Just make sure you don’t cross the line from disciplined rebalancing to aggressive speculation – that would defeat the purpose of Mutual Fund SIP’s altogether!