What are SIPs and how to manage them

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“Mutual Fund Sahi Hai,” and “Systematic Investment Plans or SIPs” are some of the words you may have heard from people around you. But what are SIPs and how do you manage them if there are many of them running at once? SIPs are becoming popular investment instruments. Most people confuse it with a plan or project; Rather, it is a way of investing in mutual funds in a regular and disciplined manner. Every month, on a date of your choosing, a fixed amount will be deducted from your bank account. It will be invested in a mutual fund scheme of your choice. It doesn’t seem like a burden as it happens monthly and you don’t need to pay a huge amount to get started. Savings can accumulate over time without too much stress and active management. But with so many options for plans in the market, it can take time to find one and get started. Let me simplify it and draw some points.

Firstly, it is essential to set up an emergency fund and 80C tax saving investments

Debt or liquid funds are preferred for emergency funds with quick withdrawals and low-risk short-term investments. A good amount should cover at least six months of your expenses. Setting aside a substantial amount like this can be stressful, so a SIP is a great way to plan for it over time. Once you reach your desired amount, keep investing as long as you need. The investor can transfer the amount to another fund to help with another long-term goal. For 80C investments, there are options for ELSS or Equity Linked Saving Schemes, which have a lock-in period of three years and invest in the stock market. They are high risk projects and generate income for a long period of time.

Finding the right amount

To understand the right amount to invest, it is good to combine the investment with a long-term goal and calculate how much you need to save for retirement planning, children’s education or buying a house. Once you know the target amount, work towards it. If you realize, you can spend Rs. 10,000 per month to reach your goal but you need Rs. can only invest. 5000, no need to worry about it because every year, you can plan to increase your SIP amount with the increase in income. During the months when you save extra, invest it in the market and supplement your existing investments. Keep your SIPs and don’t try to time the market with them. Many of us fear market volatility and how it affects our investments. SIPs are the most sensible way to manage it. Since you buy a small amount every month, daily fluctuations only affect your investments. The cost is averaged over a period of time and we have to buy units and invest even when the market is down. If we buy units at a lower price, it will generate more income over time and increase the average income.

Switching funds or discontinuing SIPs

Many keep changing their funds based on their ranking or performance. It is not wise to keep chasing well-performing funds. Check whether your funds are performing above the industry average or above their benchmarks. If yes, stick with it for a long time. If you are unable to pay the installments for a few months, opt for pausing SIPs instead of stopping them. You can pause your SIPs for three months and they will resume automatically. Sometimes, after stopping, we delay restarting investments, which hinders us from achieving our goal.

When to start?

The right time is now when you can be healthy and earn. I would like to illustrate this with the story of the grasshopper and the ant. During the hot season, the grasshopper enjoyed the sun and lazily roamed around. He saw ants gathering food and working. He mocked them and told them to live life a little. The ants did not listen and continued to work. Come winter. The grasshopper was shivering in the cold and seeking shelter. It was then that he saw the ants enjoying the winter with the food they had stored up for ages. So come winter, we want to avoid ending up like the grasshopper, looking to others for help. Being an ant is very peaceful and fun, and we can help the grasshopper too.

Views are private: Author – Nithi Rungta is the founder of Invest My Paisa

Disclaimer: The views expressed are those of the author and are personal. TAMPL may or may not subscribe to it. The views expressed in this article/video do not in any way attempt to predict or quantify the markets. Opinions expressed are for informational purposes only and do not constitute any investment, legal or tax advice. Any action you take based on the information contained herein is at your own risk and Tata Asset Management shall not be liable in any way for the consequences of any such action taken by you. There is no guaranteed or guaranteed return under any scheme of Tata Mutual Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.


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