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Sunday, February 07, 2016

5 Simple Strategies to make your SIPs work harder

Systematic Investment Plan (SIP) sounds as boring as it can get. However, at the same time, there is hardly anything as powerful as this investment model. Its power lies in its simplicity.
If you think that just starting a SIP and letting it continue is what makes it boring, then hold on. These 5 simple strategies can not only make SIP investments interesting, but can substantially impact your final corpus positively.

1. Link SIPs to your Financial Goals

Every SIP that you start must have a purpose. Actually, every investment must have a purpose. There is no point starting an investment just because you feel good about it. In fact, every long term activity in life needs to fulfil some purpose. 
A purpose gives energy and commitment to your strategy and allows you to continue with the required discipline and needed commitment. 
The goals could be your child's marriage, buying a house after 7 years, your children's higher education or even your financial freedom. Linking SIPs to specific financial goals also allows you to calculate the right SIP amount that you will need, and also the tenure for which you need to continue the SIP.

2. Revisit your SIP Amount every year

If you have taken care of the first point, then your SIPs are getting deducted with just the right amount. Your SIPs will also continue for the defined number of months and years. 
But hold on, all that is based on the assumption that our goals do not change. However, the irony as well as the beauty of life is that nothing is predictable. Goals do change. 
Not only your child may have a more aspirational goal after a few years wrt what he  or she wants to study and that too in which part of the globe, he or she might also choose a completely unorthodox field of higher study, which you never thought earlier. All these changes might need readjustment of goals.
Not only that, inflation can truly play a spoil sport with your entire goal calculation, and the amount that you forecasted to fulfil the goal may need a change. 
It is therefore, recommended to revisit your SIP requirement based on your goal requirement. If you need to supplement your SIP based on the revised goals, go ahead and do that.

3. Revisit your fund house performance

Good that you have a goal and an equivalent SIP where you're investing with the needed discipline and commitment. 
However, you need to keep a close watch on the performance of your fund in which you are investing. While the fund performance will fluctuate based on multiple factors including market fluctuations, industry, cap size of the fund etc, but at the same time, it is also feasible that your fund is not performing in line with its peers. 
It is therefore advisable to review the performance of your fund with that of its peers and see if it is doing better or atleast close to it. Do this review at least once in an year.
If you see a big lag in your fund performance, then it is advisable to think of moving to a different fund. 

4. Stagger SIPs to avoid bunching
SIP, by nature, diversifies your investment since your money gets into a collated fund, from where investments are made into multiple stocks across various industries. 
Also, since you are investing at regular intervals (say monthly), you are bringing your average cost of investment to a more reasonable level.  By design, SIP investments will average out your cost and thereby reduce your risk. 
However,  you can take a few smart steps to further reduce your risk. 
Depending on the number of goals you have, you may be running multiple SIPs concurrently - with one or more Mutual Fund houses. You can achieve further averaging by separating out the dates of the month in which SIPs are deducted from your account. 
So, if you have 4 SIPs running in a month, separate all these 4 on different dates of the month e.g. on 7th, 15th, 20th and 28th of the month. This distribution absorbs the market fluctuations that may happen during the month, as well as provide liquidity to your savings account.

5. Decide SIP exit strategically
Strategically exiting a SIP is as critical as starting it, if not more. Let us say your goal 's target date is 2020. Though your SIPs are planned until 2020, but you should start planning about exiting SIP somewhere in 2018. 
If your target corpus in the fund has been reached even before 2020, it is advisable to move these funds to a safer debt based investment by exiting the SIP. Any additional corpus over and above your goal can continue in the SIP fund.
When you do that, do not look at what others are doing or how the market is doing. The purpose of the SIP was to meet a goal, and it has been achieved. Always remember that Wealth Protection is as important as Wealth creation. Just as you would give equal importance to your child's protection vis-a-vis his or her growth (and sometimes protection would even outweigh growth), treat your accumulated wealth no less than your child.

The above 5 strategies, when applied on your SIPs with discipline and commitment, can not only ensure safety and security of your investments but also give you levers for faster wealth accumulation.

Like the article? 
Do not hesitate to share. It can make a positive impact on someone's life.

The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.


Manoj Arora
elevate your life...

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  1. In personal finance,wealth protection is quite neglected aspect.
    By making it(accumulated wealth) similar to child, you have rightly emphasized the neglected aspect very well.

    1. Thanks so much Rajanikant...Appreciate your understanding..