SIP investment tips: There are many important things about mutual funds that investors should keep in mind before investing. The Association of Mutual Funds in India (AMFI) has released the data and said that those investing through SIP have been suggested not to make these mistakes.
As we all know that SIP is an investment, which offers a good return in the long term. But many times the market goes down continuously for a long time and many people transact money due to the fear of money loss. It is important to understand that in the end, they have to give time to get better returns from SIP. This article highlights the facts related to SIP which are necessary to increase the general public’s understanding of SIP.
If you start investing in SIP and the market is down, then it is possible that you will start seeing negative returns and you will feel that your money will sink. But it is not so, SIP does not show a good profit in the initial months and years but gives good returns in the long term.
You should keep in mind that the market does not run on flat and straight lines. It has ups and downs and mutual fund is based on that pattern. When you start investing in SIP, it may happen that it would not give you good returns in the beginning but later it will give you high profit in the long run. Therefore, patience is needed.
There is a chance that some month you buy 100 units of Rs 100 NAV at Rs 10,000 and the market is down. But when the market will rise, you will be able to make up for the losses incurred earlier.
As per the Economic Times report, SIPs started in 2018 took only six months to recover from the market crash of 2020, while it took a year for the Nifty index to go back to the old level. Similarly, a SIP that started in 2005 took only 18 months to recover from the 2008 recession while Nifty took 34 months for the same.
Your investment grows over time. The interest that comes on the investment also gets added to the investment and then interest is received on that too. In this way, the compound interest on your investment keeps on increasing.
Many investors feel that it is a better option to buy more units at a lower NAV when the market is weak and stop SIP instalments when the market is high. This should not be done, the discipline of investing money through SIP is correct. If you want to earn better returns from SIP, whether the market is strong or weak, you should keep investing money in SIP, because the interest you get from SIP is only on your total investment. Never skip SIP instalments if you want to build a huge fund through SIP.
You can fix a date to exit the SIP. But it is possible that by the time of that date, the market slows down and you may not get as much return as you had expected. For this, you can also prepare an exit plan for SIP. You can start the Systematic Withdrawal Plan three years before the maturity date. With this, slowly in 3 years, all your money will come into your account. With this, you can reduce the market risk on your investment.