Systematic Investment Plan ie SIP (SIP) of Mutual Funds is the cheapest option of investment. There is an option to start investing from Rs.500 as well.
This is the reason why it is very popular among common investors. However, investing blindly in it can also prove to be a loss-making deal for you. Four factors, including high returns and type of fund, have a huge impact while investing in SIPs, which you may find it difficult to ignore.
How much return in five to 10 years
Usually investors invest in SIP after seeing the high returns of the last year or two-three years, while financial advisors say that the first thing to do while investing in SIP is to see how its average return has been in five or 10 years. Similarly, most investors look at the Net Asset Value (NAV) and invest in the fund which has the lowest value. While low NAV does not guarantee high returns.
Choose a growth plan, not a dividend
In SIP, the option of David and Growth plan is available. In the growth plan, the SIP dividend does not come into your account, but keeps on reinvesting. This increases your investment amount. It can be seen as interest over interest. Because of this, the final return becomes quite high. Whereas in a dividend plan, the amount of dividend comes into your account. In such a situation, a growth plan is much better.
Fall buying opportunity
Most of the small investors sell SIPs when the market goes down, while experts say that the market downturn should be considered as a buying opportunity. This is an opportunity to buy cheaply. This enables you to buy more units for the same amount of investment. Also, being cheaper, the per unit fee is also reduced. This makes the final return higher.
Choose Funds Carefully
While choosing a fund in SIP, its type, its management, the record of the fund manager and the long-term performance of the fund, etc. must be examined. If you ignore it, you may have to suffer.
