Investment Tips: These five things must be taken care of while starting a SIP for the first time.
Investment Tips: Mutual funds are one of the better options for first time investors. It can either be invested in a lump sum or you can invest your money through Systematic Investment Plan (SIP) at a time interval. SIP is one of the better options for first-time investors to get high returns with less risk. The biggest reason for this is that instead of investing more money in a lump sum, investment can be started with just Rs 500. In this, according to your income and financial goal, you can invest money on every week, quarter or half yearly or yearly basis. However, some things must be kept in mind while starting a SIP for the first time.
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Identify investment goals
Before starting investing in SIP, decide your short term and long term goals. This will help you to decide how much amount you have to invest and in what period you can achieve your goal. Purchasing a car, owning a house, children’s education or marriage can be the goals for any investor. In such a situation, a single SIP will not be enough and according to each goal, you can invest money in several SIPs.
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Keep an eye on inflation
A golden rule regarding investment is that while investing, keep in mind the inflation rate as well. While starting investing in SIP, one should keep in mind the current and future projected inflation. It has been seen that many people do not take into account inflation while investing, due to which their effective returns get reduced. Therefore, investors should keep in mind inflation while choosing the SIP amount for investment over a period.
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Choose Investment Plan Carefully
There are many options available for investment in the market – Equity Fund, Debt Fund or Hybrid Fund etc. Depending on the risk appetite, expected returns and investment tenure, you can choose the suitable option. If you can take more risk and want high returns and want to invest long term then it is better to invest in equity asset class. If you can take less risk then invest money in debt funds and investors who have moderate risk appetite can choose hybrid funds but returns can be average in this. Apart from this, choosing the right scheme and mutual fund company is also important. There are many types of mutual fund companies in the market which are offering various schemes. If you are not able to get great returns in all the options, then you can take your decision based on the track record of the company, cost of investment, past performance of the scheme, ability of the fund manager etc.
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Don’t invest all your money in one option
A good investment strategy is that instead of investing your entire money in one option, you should invest in more than one option. You can invest your money according to the risk appetite and expected returns. The risk appetite depends on the age, financial responsibilities, investment tenure, income and liabilities etc. Diversifying your money by investing in more than one option helps in reducing the risk. For this, you can invest money in different asset classes, schemes and mutual fund companies. However, diversification beyond a limit is also not good as it can reduce the returns whereas investing in less options carries a higher risk of risk.
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Check your SIP investment from time to time
Investing does not mean that you invest money in a scheme and then forget it. It is important to keep tracking it at regular intervals. If you feel that your money is not growing as expected, then either it is because of wrong fund selection or negative market conditions. If you perform your funds at regular intervals, then in time you will be able to take necessary steps to achieve your financial goals on time. By withdrawing from the fund which is not performing well, you can invest in other funds according to your risk taking ability which will help in fulfilling your goal.
(Article: Adil Shetty, CEO, bankbazaar.com)
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