Effective tips to maximise returns on your mutual fund SIP

Investing in mutual funds via a Systematic Investment Plan (SIP) is a popular choice among those who seek to build wealth over time. SIPs allow you to invest a fixed amount regularly, regardless of market conditions and allow you to benefit from rupee-cost averaging and compounding.

However, there are some tips you can follow to further maximise returns on your SIP investments. These include:

1. Start early:

If you start investing early, even with small amounts, you can use the power of compounding to significantly grow your wealth over time. The longer you invest, the more your returns compound, leading to exponential growth over time. If you invest INR 1,000 monthly at a 12% expected rate of return for 25 years, your total investment value will be INR 18,97,635 at the end of the investment period. Had you delayed your investment and started 10 years later, investing only for 15 years, the investment value would drop significantly to about INR 5,04,576.

2. Be consistent:

You should invest consistently irrespective of market fluctuations, as you will benefit from rupee-cost averaging. It means that you buy more units when prices are low and fewer units when prices are high, averaging out the cost of your investments. Skipping or stopping your SIPs can directly lead to reduced potential returns. Set an automatic payment from your bank account to maintain consistency.

3. Choose an ideal fund:

To select an ideal mutual fund, assess your financial goals, risk tolerance, and investment horizon to maximise returns. Equity funds may offer higher returns in the long run but have a higher risk, while debt funds provide more stability and have comparatively lower returns. You can invest in a mix of both or opt for hybrid funds. Diversifying your portfolio will allow you to mitigate risk and enhance returns.

4. Increase your investment over time:

Increasing your SIP amount at regular intervals helps you earn more and accelerate the process of wealth accumulation. Even a small increase in your SIP contribution creates a difference over time. Many mutual fund houses let you set a step-up SIP that increases your investment annually or quarterly to account for inflation and income rise.

5. Stay informed:

It is important to stay informed on market trends and your chosen funds. Regularly review your portfolio and monitor the performance of your mutual funds. Always be up-to-date about changes in your fund’s objectives, management, or strategy. Stick to your investment strategy and adjust only according to your financial goals and risk tolerance. While it is crucial to monitor your investments, avoid making impulsive changes based on short-term fluctuations.

6. Avoid frequent switching:

Frequently switching funds can lead to losses and reduce your overall returns. Each time you switch funds, you incur exit loads or capital gains tax, which can diminish your profits. Instead, focus on long-term performance and stick with your funds unless there is a dire need to make a change.

7. Use SIP calculators:

To ensure your investment strategy aligns with your financial goals, consider using an SIP calculator. An SIP calculator allows you to plan your investments by helping you determine the amount you need to regularly invest to achieve your financial goals. Enter your desired investment, expected annual rate of return, and investment period, and the calculator calculates your future corpus. This sets a realistic expectation and helps you plan your investments smartly.

Conclusion

Maximising returns on your SIP mutual fund investments requires strategic planning, discipline, and making informed decisions. By applying these tips, you can accelerate wealth accumulation. Moreover, tools like an SIP calculator let you optimise your investment strategy. With a disciplined approach, you can maximise your SIP returns and secure long-term financial stability.

(Disclaimer: Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)