We have said this in the past and are repeating it again – systematic investment plans (SIP) are to mutual funds what Xerox was to photocopy. The upside of investing in mutual funds through SIPs are that you get to invest small sums at fixed frequencies for the long run, which helps you acquire fewer units when the NAV is high and more units when the NAV is less. Effectively, over a period of time, you will average out your investment cost.
Many a time, such an investment approach is misunderstood by seasoned investors to be one where there is no scope of loss and it is always profitable. That is not true. Your investments could go down in value even when you invest through SIPs, because market movements cannot be predicted. However, the probability of good returns or profits in the long run is higher when investing in equity mutual funds through SIPs.
To extract more from your SIPs, try and increase your monthly contributions with time. This way, you will not only benefit from averaging, the compounding effect will be enhanced on the additional sum that you commit when investing in mutual funds through SIPs. More importantly, when investing through SIPs, ensure that you invest with a 3-5 year window at least to get the best results. Any time less than this may not provide the desired impact.
As always, check the performance of the fund you invest in so that you can stop or continue SIPs. Ideally you should evaluate the performance of the fund you are investing once a year to take such a decision. This way you will have the flexibility to stay invested or change investments to another fund if need be. The flexibility and convenience of investing through SIPs in mutual funds will take care of your investing goal.
