If you have a huge amount to invest, then in such a situation investing it every month through SIP is not the right way. With this, you will miss out on getting returns on a large part of your amount.
Mutual Fund Investment: Systematic Investment Plan (SIP) is generally preferred when investing in mutual funds. It is believed that SIP is the only safe way to invest in mutual funds. But, this is not always true. Mutual funds allow a variety of investment options, with varying asset classes, tax benefits, varying returns and risk appetite, etc. In this, you can invest a large amount in one go and also small amount can also be invested at regular intervals through SIP. Investors who want to generate funds slowly over a long period of time, prefer SIPs rather than lump sum investments. However, investing through SIP is not always right. If you are planning to invest through SIP, then in certain situations you should avoid it. Here we have told about them.
When You’re About to Reach Your Financial Goals
One of the main objectives of investing through SIP is to reduce the risk of market volatility in the short term. SIPs are meant for long-term investments, so as to reduce volatility in the short-term market. When you are about to achieve your financial goals through long-term investments, it becomes imperative to invest your funds in low-risk areas to minimize risk and avoid losses. In this situation, it is not right to continue investing through SIP. Even if the market is bullish, don’t get greedy and invest your funds in less risky places. As you approach your financial goals, you should keep the focus fund safe.
When you have a huge amount to invest
If you have a huge amount to invest, then in such a situation investing it every month through SIP is not the right way. Suppose, you have 10 lakh rupees and you are planning to invest 5000 rupees every month in equity funds through SIP, then you will miss out on getting returns on a large part of your amount. Instead, if you plan to invest the entire fund systematically, i.e. Rs 50,000 per month for 20 months, then this would be a better approach.
If your mutual fund scheme is not giving good returns
When you invest in mutual funds, it is important to track the performance of your portfolio. Sometimes, some schemes in your portfolio do not perform well. If you continue to invest in loss making mutual funds, you may incur huge losses. The best way to avoid further losses and update your portfolio is to stop loss making SIPs immediately. It is necessary to update your portfolio from time to time.
Always keep in mind, SIP can help you reduce your risk, provided you choose the right fund. SIPs have certain limitations that you should keep in mind before investing in them. These are meant for the long term and may not give you good returns in the short term. With a little hard work, your SIP can prove to be a great way to invest.
(The author is the CEO of BankBazaar.com)
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