Sipinvesting

30/12/2015

Avoid these mistakes to help your money grow through SIP

A systematic investment plan (SIP) allows disciplined investments (recommended in small amounts) at regular intervals (recommended monthly) to yield high returns over a long period of time. Rather than investing a lump sum amount (usually unaffordable for many) in an investment option, SIPs help to build wealth gradually without hurting your overall financial commitments. Not to forget, it accompanies the power of averaging and compounding which further makes it a smart investment option.

However, you might wonder why investors have mixed reviews about SIPs? There are some common mistakes that investors make and fail to extract the maximum advantage from SIP investment as listed below.

Deciding High Amount for Investing

Excited by the benefits of SIP, many investors commit high investment amount without calculating their present and future financial capabilities. If you are single at present, you might be able to afford a big amount, which might become difficult once you have a family.

What to Do?

Evaluate your financial condition (present and future salaries, expenses and contingencies) and set a realistic amount for monthly SIP investments.

Investing for 1 Year

Many investors try to reap the benefits of SIP through single year investments. Considering the volatile nature of market, it is an extremely small duration for the plan to work in your favour.

What to Do?

SIPs are the best investment option in fluctuating market scenario as they help you benefit due to averaging. Investing for a longer time period helps you benefit optimally from SIP investments.

Discontinue SIP in Falling Market

Market volatility drives the decision of many investors who usually discontinue their SIPs when the market falls.

What to Do?

The market mood should not influence your investment commitments in SIP. Due to investment being spread over different months of the year, the ill-effects of 'wrong investment time' are reduced considerably. Plus, when market sentiment is down, gain by getting more SIP units due to low price.

Choosing Dividend over Growth

Counting on the short-term profits, investors usually prefer taking 'dividend' option to withdraw a part of the earned SIP benefits regularly. It actually defeats the amazing power of compounding that SIPs are known for.

What to Do?

Allow the dividend to be reinvested to gain compounded wealth at the end.

Invest and Forget

Investors most of the times invest in SIPs and forget to monitor and renew it. Considering that every mutual fund is bound to perform differently, you should keep a watch on your investments.

What to Do?

Evaluate the investment portfolio frequently and replace the non-performing mutual funds by those with high probability of good returns.

Your hard-earned money should follow the right investment approach to grow. By avoiding these mistakes, you are empowered as a smart investor with the right insight for handling SIPs.

Now More Call Jatin 9914148533

29/12/2015

In our earlier article on investor awareness, we highlighted various advantages of investing in mutual funds like diversification, professional fund management and liquidity. However, there are certain myths associated with investing in mutual funds. In this article, we would like to clarify five of the most common myths associated with investing in mutual funds.

Myth 1: You need a large sum to invest in mutual funds.

This is an erroneous perception. You need not have a lot of money to start investing in funds. You can start with a sum as low as Rs 500 when investing in equity linked saving schemes (ELSS) or Rs 1,000 every month when investing in a mutual fund through systematic investment plans (SIPs).

Myth 2: Buying a top-rated MF scheme ensures better returns.

Mutual fund ratings are dynamic and based on performance of the fund over time. So, a fund that is rated highly today, may not necessarily maintain its rating a year later. While a highly rated fund is a good first step to short list a scheme to invest in, it does not guarantee better returns eternally. Investments in mutual funds need to be tracked with respect to its benchmark to evaluate its performance to stay invested or exit.

Myth 3: Investing in mutual funds is the same as investing in stock market.

Not all mutual funds invest only in stocks. In fact, even the most diversified equity funds have a mix of equity and debt. Also, the sheer variety of mutual funds means that there is a fund for every type of investor, spanning a risk spectrum of low to high and spreading investments that are significantly high in equities to those which have no exposure to equities.

Myth 4: A fund with lower NAV is better.

This is a popular misconception. A mutual fund's NAV represents the market value of all its investments. Any capital appreciation will depend on the price movement of its underlying securities. Say, you invest Rs 10,000 each in fund A (whose NAV is Rs 20) and fund, B (whose NAV is Rs 100). You will get 500 units of fund A and 100 units of fund B. Let's assume both schemes have invested their entire corpus in exactly same stocks in same proportions. If these stocks collectively appreciate by 10%, the NAV of the two schemes should also rise by 10%, to Rs 22 and Rs 110, respectively. In both cases, the value of your investment increases to Rs 11,000.

Therefore, always remember that existing NAV of a fund does not have any impact on the returns.

Myth 5: You need a demat account to invest in mutual funds.

You do not need a demat account when investing in mutual funds. You may just fill up an application form, attach a cheque of the desired amount and submit the form at the mutual fund office or to your financial adviser.

Now that you have more clarity on investing in mutual funds Call Now: Jatin 9914148533

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