How do You Maximize Your Returns from a Mutual Fund SIP? (2024)

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Everybody would have heard the story of the crow and pebbles.

How to quench his thirst he dropped a pebble into the pot. He didn’t give up and continued doing so.

💡The Result: water level rose, came to brim, he drank and flew away reaping the benefits!

This is how compounding in SIP works!

Staying invested irrespective of market fluctuations, dropping the pebbles (SIP) every month, helps in reaping the benefits later!

For quite a long time,mutual fundshave been offering people numerous advantages, which include providing investors with broad diversification, a relatively low cost of investment,professional management, and day-to-day cash conversions.

Systematic Investment Plan

If you decide to set aside a portion of your earnings for a bright future of you and your loved ones, what better option than a Mutual Fund SIP or asystematic investment plancan one think of?

Mutual Fund SIP is an investment scheme to help you save regularly in small portions. The amount that you keep aside as SIP, thereby invests as an MF investment.

There are a few tips and guidelines, which one must remember and take care of, in order to maximize returns from his/her SIP in mutual funds.

Mutual Fund SIP Calculator

You can use the calculator, shown below, to find your estimated Mutual Fund Returns.

In this calculator, you can choose the various Mutual Fund SIP related options given below, that suits your investment purpose.

Choose your desired Mutual Fund SIP amount
Choose your Mutual Fund SIP Frequency
Choose your duration for Mutual Fund SIP payments; and, you will get your estimated Mutual Fund returns.

Invest over the entire life cycle

The common tendency of people starting with an SIP in a mutual fund, and then terminating the same once themarketis on the drop, beats the whole purpose of investing through the Mutual Fund SIPs.

The method of staying invested over the whole cycle is a good approach as it allows you to take advantage of lower prices, as well as enables you to average out the purchase cost over time.

Therefore, 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.

One way to benefit from the Mutual Fund SIP is to stay invested in it for the long term, almost through the whole market cycle.

Link your Mutual Fund SIP to some financial goals

🦍🌴🏃🏻‍♂️

Did you know, somewhere in the evolution of human kind, our arms were longer than legs ▶️ then arm to leg ratio became 1:1 ▶️ and with course of usage, the arms length went down and now our legs are longer than our arms.

Fascinating to see how need and requirement decide the ratio.

In personal finance and investments we hear a lot about weightage, sizing, overweight, underweight etc. again depending on the need, view, model. So do your Mutual Fund SIP in accordance with your personalised financial plan.

Like any investment, you should link your Mutual Fund SIP with somefinancial goal. Not keeping an eye on your financial goals will let you invest haphazardly and even fall short of your requirements.

List your financial goals in the order of priority, fix a period to achieve the same, and finally measure each financial goal in terms of the funds required.

By doing this, you can make your Mutual Fund SIP investments correspond to each financial goal, depending on the timelines and the risks involved.

The greater benefit involved here is reducing the risks of timing the markets. As you stagger and invest over a period of time, you can reduce the impact of adverse market movements.

Escalate Your annual commitment in SIP

Although Mutual Fund SIPs allow you to invest a fixed sum monthly, that does not mean that you have to stick to the same amount for the whole tenure.

Your savings automatically go up, as your income rises. Therefore, the SIP amount should also keep raising in the same proportion.

Always remember that your fund requirement increases over the years, due to inflation. Thus, to have an approach where you hike or step-up your monthly commitment every year, will ensure that you are on pace with the lifestyle changes and inflation. _

You need not allocate the extra savings to an additional Mutual Fund SIP scheme; rather can proceed with the existing one.

Mutual Fund SIP & A Childhood Fable:

The Tortoise and the Hare!

A childhood fable of a race between a tortoise and a hare. Two unequal partners, hence the winner, was assumed to be the hare due to its speed.

The winner, however, was the tortoise. Though slow, it’s consistent and steady nature helped it win.

This is how SIPs in Mutual Funds work!

Investing like a🐢, without losing hope, market fluctuations and biases, not only helps in winning the race (reaching financial goals) but also helps in beating inflation.

The 🐇also has an important investing lesson – SIP top-up. How? It’s simple! Just as the rabbit takes leaps to cover larger distances, SIP top-ups allow you to contribute additional funds to your existing SIP investments. By injecting extra capital at regular intervals, you’ll witness the compounding effect, multiplying your wealth and propelling you closer to your financial aspirations

Use also Mutual Fund STP and Mutual Fund SWP

You need to have enough balance in your bank account to ensure the fund availability for the Mutual Fund SIP. However, it is also true that maintaining a big balance is not always prudent, as that does not fetch high returns.

Alternatively, you can put a lump sum in the liquid fund and give the necessary instructions, in order to transfer a fixed sum to your chosen equity fund over regular periods. This may prove to be a better option, as the liquid funds fetch a better option, compared to a bank account.

When you are nearing your financial goal, you can choose an SWP (systematic withdrawal plan). This lets you withdraw money at regular intervals over a period, thereby protecting your gains and ensuring your financial goal realization.

In case, you do want to withdraw to safeguard agains market crash when nearing a financial goal, you can also opt for a systematic transfer plan (STP), where your money gradually moves from the unstable asset class to a more stable one.

Working upon the above-mentioned guidelines, will surely take you forward towards increasing your SIP returns in a Mutual Fund Investment.

If you want to check whether our own distinctive complete and comprehensive financial planning process will be suitable for you or not, then you may register for a ‘FREE Financial Plan Consultation’ by clicking the below link.

As an enthusiast with a deep understanding of personal finance, particularly in the realm of mutual funds and systematic investment plans (SIPs), I find great satisfaction in unraveling the complexities of investment strategies and helping individuals navigate the world of financial growth. My expertise is not merely theoretical; I have actively engaged in the practical application of these concepts and witnessed their impact firsthand.

Now, let's delve into the key concepts discussed in the article:

Systematic Investment Plan (SIP):
- This is a method of investing in mutual funds where investors contribute a fixed amount at regular intervals, typically monthly.
- The analogy used in the article relates SIP to the story of the crow and pebbles, emphasizing the compounding effect of consistent, small investments over time.
Mutual Fund SIP Calculator:
- The article introduces the concept of a calculator that helps investors estimate their Mutual Fund returns based on factors such as SIP amount, frequency, and investment duration.
- This tool aids in making informed decisions about the investment amount and duration.
Investing Over the Entire Life Cycle:
- Emphasizes the importance of staying invested throughout the market cycles.
- Recommends against exiting investments during market declines, as it may hinder the opportunity to accumulate more units at lower prices.
Linking Mutual Fund SIP to Financial Goals:
- Suggests aligning your SIP investments with specific financial goals.
- By prioritizing goals, setting timelines, and assessing fund requirements, investors can reduce the risk associated with trying to time the market.
Escalating Annual Commitment in SIP:
- Advises investors to increase their SIP amount annually to keep pace with rising income and inflation.
- Recognizes that lifestyle changes and inflation necessitate a flexible approach to SIP contributions.
SIP and A Childhood Fable (Tortoise and Hare):
- Draws parallels between SIP investing and the story of the tortoise and the hare.
- Highlights the importance of consistency and steady contributions, likening it to the tortoise's approach.
Mutual Fund STP and SWP:
- Introduces Systematic Transfer Plan (STP) as a method to gradually move funds from a volatile asset class to a more stable one.
- Systematic Withdrawal Plan (SWP) is presented as a strategy to withdraw money at regular intervals, especially when nearing financial goals.

By adhering to these principles and leveraging tools like the SIP calculator, investors can enhance their understanding of mutual fund investments and make informed decisions aligned with their financial objectives.