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Investors looking for small investments can choose to invest offline or online in a mutual fund that offers them the option of making regular investments. A SIP or the Systematic Investment Plan is a type of mutual fund scheme that allows investors to invest a fixed amount of sum at pre-decided intervals that can vary from weekly to annually.
This investment route allows an investor to invest in a time-bound manner without worrying about the functioning of the markets. A major benefit of such plans is that the investors benefit over the long run due to the averaging of costs and the power of compounding.
How to Boost Returns from SIP?
SIP allows investors to start with a small sum and earn good returns over the long run. The compounding effect helps in enhancing their returns. The compounding effect means that investors earn returns not only on their actual investment but also on the gains earned on the principal amount. Investors can use a mutual fund calculator to check the returns generated by a mutual fund scheme or plan.
SIP investors have the option to alter their investment through either the step-up SIP option or the alert SIP option. While the former allows investors to increase the amount step by step during the tenure of the SIP, the latter involves alerting investors about the downtrend in markets and recommending them to invest more.
Here are some tips to boost your returns from a SIP:
- Increase Your SIP Investments – You can do this with an increase in your earnings. A pay hike should contribute towards enhanced savings and investments to secure your financial future.
- Invest for a Long Time – If you wish to maximize your returns from a SIP, you should stay invested over the whole cycle as it allows you to take advantage when the markets are low. By exiting during the market decline, one abandons his chance of buying more units at low prices that can produce good returns, in case the market again takes a turn.
- Set a Long-Term Goal – This can help you get more returns from SIP. This is because the returns generated on each contribution made by you get cumulated and earn further returns. By investing in a SIP for the long-term can help you maximize the returns generated by it.
- Use Systematic Withdrawals Carefully – While you have the option to withdraw your SIP investment if you are facing a financial crunch, you should avoid this option in the early phase of your investment journey. Go for this option only when you are nearing your set financial goals or reaching your retirement age. Also, ensure that you are withdrawing only the returns generated and not the principal portion to ensure that some returns continue to be generated.
- Use Systematic Transfer Plan – Instead of withdrawing your funds, you can also opt for a systematic transfer plan wherein your money is moved from an unstable asset class to a stable one.
Investors can always link their SIP to specific goals related to retirement or marriage and can always use a SIP calculator to check whether their investment is yielding the desired returns.
