Here are 10 Tips to Create Wealth with a Systematic Investment Plan

If you’re a first-time investor, you’ve probably wondered how frequently you should contribute to your portfolio. Is it enough to throw in a lump sum every couple of years? Or do you need to address your investing a little more consistently?

Most investment services advisors would recommend you take the second route. Regular payments to your folio can keep you on track with your long-term financial goals. And this is where a Systematic Investment Plan (SIP) can help.

A SIP is an investment mode for mutual funds where investors make automated payments at regular intervals. While it does require an extended commitment, it’s a great way to build wealth over time. 

That said, there are some basics you must take care of if you want your SIP to work hard. Here are ten tried-and-tested tips to help you set the ball rolling. 

  1. Start As Early as Possible 

One of the best things about SIPs is compounding returns. Basically, this means while your principal generates returns, your returns also spawn returns.  

Picture this. Persons A and B start putting $5,000 in SIP and earn similar returns. However, A started at the age of 25 and B at 35. Both stop investing when they reach 60. Given how compounding works, person A’s 10-year headstart will result in much higher returns as compared to person B.  

As with any type of investment, starting your SIP journey early can yield substantial results. Hence, even if you have little to spare in the initial phase, be sure to take the leap. 

  1. Choose the Right Mutual Fund 

SIP mutual funds come in all shapes and sizes. Hence, it’s up to you to zone in on your desired type. The kind of mutual fund you select will directly impact your returns, so it is best to exercise caution.  

Here are a few factors to bear in mind. 

  • Past performances against category and benchmark 
  • Risk ratio 
  • Individual goals 
  • Investment horizons  
  1. Compare Different Funds 

It’s vital to analyze funds on different parameters, such as expense ratio, consistency, the fund manager’s reputation, and the asset management company’s track record. Since all this can be a little overwhelming to process, consider hiring an investment advisory services company to help you out. They have the skills and experience to guide you in the right direction. 

  1. Increase SIP Amounts  

Your SIP amounts should be proportionate to your paycheck. Oftentimes, investors forget to ramp up their contributions once their income increases. This usually ends with them earning a lesser amount than they should.  

Talk to a wealth management services expert to understand exactly how much of your salary should go to your SIP account. Take things like bills and other specifics into account. The goal is to make sizable payouts without compromising your lifestyle. 

  1. Don’t Withdraw Prematurely 

Let’s face it, no one can predict a financial emergency. You may be forced to withdraw your funds before they mature. However, doing this when your portfolio is undervalued can be a disaster.  

Premature withdrawals are bad news for your SIP career. In case of compelling, unavoidable circumstances, only pull out the returns so that the principal amount can still generate income.  

  1. Keep Tabs on Your Funds 

Reviewing the current status of your mutual funds at regular intervals can help maximize returns. When you monitor a fund’s performance, you can see if the graph indicates a negative slide. This, in turn, will enable you to decide if you want to park your investments elsewhere.  

You can also analyze past data to make correct future plans. Observe and stay updated to minimize the risk of losses.  

  1. Tag Every SIP to a Specific Goal 

Before you start an SIP account, ask yourself this: what are you looking to accomplish? Whether it’s a short-term goal like a home/car margin or a near-future event like retirement or a child’s wedding, tagging SIPs to a specific goal will let you know if you’re on target or not. 

Not sure how to do this? Here are some tips to get you started. 

  • Identify your goal and the time you have to reach it 
  • Chalk out a rough estimate and add a reasonable amount of inflation to it 
  • Decide on an asset class with your wealth management advisor 
  • Work backwards and calculate the amount you could save via lumpsum, SIP, or a combination of both 
  1. Be Patient 

Remember the saying ‘slow but steady wins the race’? That’s the secret to successful investing. The longer you invest, the more beneficial it is to you. Being patient may seem like a boring strategy, but it always helps to keep emotions and snap judgments in check.  

  1. Do Your Research 

Here’s a reminder that investment research is non-negotiable. If you’re looking to multiply your returns, you need to dig up records of mutual funds and their return cycle. Get hold of as much data as you can to examine what they have yielded till date. Only invest once you have all the information you need.  

  1. Stay Disciplined  

There’s no denying that SIP investments take a fair bit of discipline and diligence. We suggest you make it a habit to feed your mutual funds by a set date. Otherwise, you may get caught up in other engagements and forget your payments entirely.  

The Bottom Line 

SIPs are a great way to start your investment journey since they allow high returns at relatively low investment risk. You can make weekly, monthly, quarterly, or even biannual contributions, as you deem fit. All you need is a well-thought-out game plan, and you’re good to go. Hopefully, these ten tips will help you start your SIP journey on the right foot.

Author Bio: Sandy Funches is a freelance writer who enjoys writing. Writing is of utmost importance to her as doing so helps her educate people by spreading her knowledge.