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Mutual Fund Investment: How to choose the right Systematic Investment Plan to match your portfolio

Archit Gupta
mutual funds, mutual fund investment, SIP, Systematic Investment Plan , investment portfolio, How to choose the right SIP

Mutual funds are one of the most trending investment avenues of late. Millennials prefer mutual funds over all other investment options. This may be because of the existence of systematic investment plans (SIPs) in mutual funds. SIPs allow investors to plan and tailor the mutual fund investment as per their comfort.

These days, no matter what, people are not willing to compromise on their convenience, especially millennials. SIPs allow investors to invest a fixed sum regularly. The frequency of an SIP can be weekly, monthly, quarterly, bi-annually, or annually, as per your choice. Also, what gives investors a cushion of comfort is that SIPs can be initiated or terminated whenever they want, and there are no charges imposed on investors.

Before you start an SIP, it is wise to consider the following factors to match your portfolio:

1) Decide the quantum of investment

This depends on your goals and objectives. Also, without a well-defined goal, you would lack the motivation to start investing. Hence, you need to set an investment objective and then decide the amount you need to achieve that. The investment goal can be a short-term one like going on a vacation or a long-term one like funding your dream home.

2) Check inflow of your funds

Before you make any investment decision, you should ensure to set aside a sum sufficient in covering your daily expenses. It shouldn't be the case that you are running short to cover your everyday needs and investing in mutual funds. Depending on the inflow of funds, you need to determine the frequency of your SIP. As mentioned earlier, the frequency of an SIP can be weekly, monthly, quarterly, bi-annually, or annually, as per your comfort.

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3) Tenure of investment

The tenure of investment is the duration for which you would stay invested in the fund. You need to note that you can continue staying invested in the scheme even after discontinuing your SIP. Analyse and determine the quantum and tenure for which you would like to remain invested and then decide on how many SIP payments you would invest the amount you determined.

4) SIP amount

After you have determined your investment tenure, you need to sit down and calculate how much should be the SIP. In case you feel burdened with investing a high amount in SIP, then you can enhance the tenure of SIP and reduce the SIP amount. By doing this, you would have enough money in hand and feel comfortable in spending on other expenses.

These are the critical factors that you must consider while choosing the SIP to match your portfolio. Also, you should not terminate your SIP when the markets are down. Investing in SIPs keeps market fluctuations at bay as it offers the benefit of rupee cost averaging. When the markets are down, and you continue with your SIP, then you end up buying more fund units. This is beneficial as you can make good profits by redeeming your units when the markets shoot up. This benefit is not available if you opt to invest in mutual funds with a one-time lump sum.

(The author is Founder and CEO, ClearTax)