SIPs or Systematic Investment Plans are gaining popularity these days. Considering how exponentially the equity markets are rising, and the returns SIPs generate, they are increasingly turning out to be a popular choice. SIPs are easy investment plans, and first-time investors would not be able to avail of a better plan than this. This is a tailored investment plan for first-timers.
But before you consider investing in SIPs, here is a list of all you should know:
- Making the right decision:
Any sort of investment depends upon the type of investor you are. You need to evaluate your investment patterns and discern whether you are a conservative, moderate or aggressive kind of investor.
You need to rightly calculate your future goal value and expect a slightly lower return based on which you can decide your investment amount in accordance with your investment style. For this, it is advisable to use SIP calculator to get a clearer picture of estimating what’s in store for you.
- The length of your goal
You also have to estimate the tenure of your goals. If you have a short-term goal in mind, then you should opt for an annual or a biannual plan. Such plans have a specific investment horizon and require steady investments during the SIP’s tenure.
Then there are medium length goals which have a minimum investment horizon of three to five years. Slightly different than medium goals are long-term goals which have a minimum investment horizon of 5, 10 or even more years. These could be a plan for your child’s higher studies, your retirement plans, etc.
- The cost
You need to also bear in mind the fact that the money management that comes with mutual funds is not free. They charge a fee which is called Expense ratio. Initially it may sound like a small amount but in the long run, it may have a greater impact on your returns. Your SIP calculator can tell you that even a difference of 0.5% can mean a huge sum in a span of 10 years.
The most important aspect about an SIP is the return. You need to check the return you receive from a fund and compare it with the benchmark. This is because there usually is an index and some other funds in the same category. There however is no assurance that your mutual fund with perform in the same manner again, but a closer and more analytical look into it will give you a distinct idea about which funds can prove to be better for you.
- Corpus size
The corpus size is the number of people who have subscribed to the fund. It adds to the credibility of the whole scheme. And in terms of SIPs, the corpus size is huge.
There are, however, certain mutual funds that will have a small corpus size, but if you are one of those first-time investors, you need to take care that your money is parked in a plan with a large asset base. This will make you confident about your investment and encourage you to invest more freely in the future.
No matter how lucrative a plan would seem, without your vigilance and alertness, there is no benefiting from it. Bear in mind these six key factors before settling in for an SIP plan, and you are good to go.