It is a known fact that investing in mutual funds involves risks, but it is also true that there are several ways by which you can increase your returns in mutual fund investment. In this write-up, we list down a few simple tips that would hold you in good stead with your SIP plans.
Financial studies suggest that the mutual fund investments have grown significantly in the recent past. The growth can be attributed to the fact that the mutual fund investment has offered a valuable return to the investors. Several people are turning to investing in mutual funds rather than keeping their money in fixed deposits or other bank instruments because these funds not only offer higher returns but they also provide tax benefits.
If you have surplus cash and are looking for ways to grow your money, it is best advised that you invest in the mutual fund systematic investment plans or SIPs. The SIPs are quite similar to the recurring bank deposits. You need to invest a predetermined amount every month for a stipulated period in a particular fund scheme. You can start your SIP investment even with a small amount of Rs. 500 per month. However, depending on your financial status, it is advisable that you invest as much as you can; higher the investment, the better would be the gains.
Just like other investments, SIPs too are not immune to risks, no matter if you invest in the top SIP plans, you still can lose money if you don’t plan your investment properly. If you are a newbie investor, you must consider adopting these simple tips to maximize your returns on mutual fund investments.
Stay invested for a long time
Typically, people tend to invest when the market surges and stop while the market is going down. However, this practice should be avoided while investing in SIPs, you need to stay invested through different market cycles, this would help you neutralize the market volatility. If you exit the fund during slump, you would miss out on the opportunity to buy additional units of the stock. Thus, you also lose on the opportunity to earn valuable returns when the market bounces back. Financial experts suggest that investors should hold onto their funds for a minimum of three years so as to benefit from it.
Create a diverse portfolio
You can easily create a diversified portfolio by investing in three to five different mutual fund schemes. It is advisable that you avoid investing in more than five SIPs unless you have surplus cash and you want to invest all of that in share market. Another important aspect of creating a diversified portfolio is to invest in different sectors. If you hold significant funds in a particular sector like IT, make sure that rest of your schemes are targeting other areas like banking, oil or metal industries as well.
Choose different dates for investment
The share market is volatile, and so it can fluctuate at any time. It is impossible to predict when the market would plunge upward or downward. This makes investing in share market all the more risky. The market fluctuations have a direct impact on the performance of the mutual fund thus to mitigate the risk, you must fix the SIP at different dates of the month. Thus if you have say five mutual funds scheme in your portfolio then choose five different dates for your SIPs like 1st, 14th, 19th, 23rd and 25th. So if the market slumps on 14th, only one of your mutual fund schemes would get affected.