4 Tips to Achieve Your Financial Goals Through SIP’s

The ubiquitous “Mutual Funds Sahi Hai” campaign has fuelled an increased interest in Mutual Fund SIP’s (Systematic Investment Plans) over the past five years. The industry’s monthly SIP inflows stood at Rs. 15,814 crores as on August 23 as Mutual Fund assets  grew significantly over the past five years. If you’re one of the thousands of investors who are using SIP’s to achieve their financial goals, here are four things to keep in mind.

Select Your Funds Based on Your Time Horizon

Counterintuitive as it may sound - when it comes to goal-based investments, it makes sense to disregard your risk profile and focus only on your time horizon instead. For instance, choose aggressive small & mid cap equity funds for goals that ae more than a decade away, and short-term debt funds for goals that are a year away. Doing this will ensure that you reap the maximum benefits of rupee cost averaging and compounding from your SIP’s

Be Disciplined… Very Disciplined

When it comes to goal-based SIP’s it is mainly your discipline that will determine your long-term success. If you’re the kind of person who frequently stops and starts his SIP’s, or lets them bounce for a couple of months and lets them debit for a couple of months, your chances of achieving your goals through them are fairly slim. Ensure that you start off with an amount that is comfortable for you, but once you do – make sure you treat your SIP’s as sacrosanct and ensure that they keep running like clockwork.

Ignore the Noise

Short term events such as BREXIT, demonetisation, elections, crude prices and RBI rates have very little bearing on the long term returns from SIP’s. If you get rattled into action every time the newspapers sensationalise something, you’re likely going to wind up taking some very myopic decisions with your SIP’s When it comes to SIP’s in Mutual Funds, dispassion is more important than active management! Just ignore the noise and keep going; rewards will follow sooner than later.

Have a Step-up Plan

An annual step up plan is like rocket fuel for your Mutual Fund SIP’s. Here’s an interesting calculation. If you run a SIP of Rs. 10,000 per month for 25 years for your your retirement, you’ll probably end up accumulating something to the tune of Rs. 2 Crores at the end. However, if you step up the amount by just Rs. 5,000 per month every year, you’ll have closer to Rs. 8 Crores! Some Mutual Funds even allow you to automatically step up your goal-based investments every year. Enrolling for this feature would be a great idea.