Thursday, 28 May 2015

6 Tips to Maximize Returns From Your Mutual Fund SIPs

Posted by MyInvestmentsPub
Investing in Mutual funds through Systematic Investment Plan (SIP) is a powerful approach and this has been proved many times. However, you should follow some tips or guidelines to maximize your returns. Based on my experience with Mutual Fund Investments through Systematic Investment Plan (SIP), I am sharing some tips to you to maximize or optimize your returns. Though these are simple tips but very effective and would make huge difference in your investment returns in the long term.

6 Tips to Maximize Returns From Your Mutual Fund SIPs:

1. Long Term Approach:

Most of us have a tendency to stop the SIP during market crash and start during market up. But, if you buy during market crash, you will get additional units of Mutual funds because the unit value of the Mutual Fund is comparatively lesser. The most important tip in Mutual Fund SIP Investments is, stay invested over the entire market cycle. This approach will average your losses and maximize or optimize your returns at the end. Based on my experience, the minimum term for Mutual fund SIP investments is 5 years to allow market ups and downs which would eventually average your losses.

2. Maintain Right Number of Funds in the Portfolio:

Your Portfolio should have 3 - 5 Mutual funds only. You should not maintain more than 5 mutual funds unless you have surplus amount and wanted to play with that investment in any crazy theme-based Mutual funds. The optimum size of a portfolio is with 5 Mutual Funds. For example, if you wish to invest Rs 5000 every month in Mutual funds, you divide this 5000 into 5 Mutual funds with different and diversified categories. This approach would maximize returns in the long term. Ideally your Portfolio should have Large cap, Large & Mid cap, Mid & Small Cap, ELSS and a Debt fund.

3. Ensure Multiple Date selection for SIP:

Generally Markets may crash or boom at any point of time. There is no specific time for Market ups and downs. To en-cash the Market turbulence, you should stagger the payout at different days of a month. For example, you have 4 Mutual funds, then your SIP investment dates would be carried out on 1st, 7th, 14th, 21st respectively. The bigger advantage is that you reduce the risk of timing the market because the money is invested on different days of the month, negating the impact of adverse market movements.

4. Maintain Goal Based SIP Approach:

Every person may have different financial goals. Some goals are long term like Children education, children marriages, Retirement etc. Some goals are short term based like Taking vacation, Buying a car etc. So, if you are making a portfolio, each Mutual fund SIP should be linked to one financial goal. Your short term goals should be linked to Debt dominated mutual funds because your time horizon for this goal is less and your investments should be safe. Like wise, your long term goals should be linked Equity dominated Mutual funds, because you have sufficient time horizon and can bear some risks here.

5. Revise Portfolio twice in a year:

Every year due to various International or National factors, the priority of sectors might be changing. For example, from the last few years, the Rupee value is decreasing and this factor making IT and Pharmacy sectors are most favorable sectors. Like wise, the new central government focusing on 'Make in India', this would make Infrastructure sector.. a most favorable sector in the coming days. Based on these factors, the Fund Manager alter the portfolio of his Mutual fund to maintain the performance levels of the Mutual fund. Based on their performance levels, some research firms allocate 5-star, 4-star ratings . Hence, you should revise your portfolio at least twice in a year to check the performance levels of your Portfolio. If any of your Mutual fund rating is constantly decreasing, then it is the indication for you to get rid of from that Mutual fund and to select a good Mutual fund from the same category.

6. Step-up SIP value every year:

As your income increases, your savings would also increases. It is always good approach to step-up your SIP amount every year based on your income and savings. Having a step-up SIP approach, where you hike the monthly commitment every year, will ensure that you keep pace with inflation and changes in lifestyle. The surplus saving need not be directed to a new SIP in another scheme, but can be allocated to the existing SIPs. A minimum of 10 % step-up in your SIP investments every year is suggestible to take care of the inflation challenges and life-style expenses.


There might be some other tips to maximize your SIP returns, but based on my experience, the above 6 tips are the best tips to maximize or optimize your Mutual Fund SIP Investment returns.
Happy Investing!  

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