Smart SIP Tips - How To Get Better Returns with Your SIPs? 

‘Slow and steady wins the race’… Steady is the important word for us over here. We are very familiar with the story of the tortoise and the rabbit. The steady one wins at the end. The same concept works in the case of wealth creation as well. A SIP Systematic Investment Plan is a mode of investing money in mutual funds^^. This is a planned approach that helps you inculcate a habit of saving and creating wealth for the future.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

Tips To Get Better Returns with SIPs

Investing through SIPs can be a great way to grow wealth and achieve significant financial goals. However, multiple SIP options make it challenging to determine the best investment option. 

Here are some tips to get maximized returns when investing in funds through SIPs.

  1. Invest in Top-Performing Funds

    • Investing in the best SIP plans is crucial for maximizing returns in fund investments.

    • SIP investments tend to perform better in the longer run, hence, accruing significant returns.

    • Consider starting SIPs for the funds that have outperformed their benchmark over a long period.

  2. Continue Investing Despite Market Conditions

    • Investing in a disciplined manner despite market ups and downs can help you achieve long-term financial goals efficiently. 

    • Avoid making emotional decisions based on short-term market fluctuations.

    • While SIP investments help minimize principal loss, it can also help get more fund units when the markets are low. However, proper market analysis is a crucial key to this.

  3. Rebalance Portfolio

    Rebalancing your portfolio is an essential part of maintaining a disciplined investment strategy. Over time, your portfolio's asset allocation may shift due to market fluctuations, which can increase your risk exposure. Rebalancing helps to keep your portfolio in line with your long-term goals and risk tolerance.

  4. Invest for the Long-term

    • Investing for the long term is the key to maximizing returns. 

    • Time in the market, not timing the market, is what matters when it comes to investing. 

    • Long-term investments tend to ride out market fluctuations better than any other type, thereby attracting higher overall returns.

  5. Avoid Withdrawing Early

    It is not advisable to withdraw money from your funds until an emergency arises. Besides reducing the total investment amount, early withdrawal can also attract penalties that further reduce the returns. Stay invested in the funds for a longer term (5 to 10 years) to get maximum returns.

  6. Stay Updated on Market Trends

    • Staying updated on market trends can help make informed investment decisions.

    • Keep an eye on the economic growth indicators and global events that impact the market.

    • Short-term market fluctuations should not influence long-term investment strategy.

    • Stick to your plan and stay disciplined when investing in funds. By doing so, you can maximize your SIP returns.

Benefits of Investing through SIPs

Apart from the saving discipline and compounded return, let’s look at a few more benefits of investing through SIPs:

  • Flexibility- It is generally advisable to hold onto SIPs for a long period, but it is not a compulsion. Any Systematic Investment Plan (SIP) can be discontinued at any point in time. You can also increase/decrease the amount being invested.

  • Long term Gains- Compounding helps SIP investments deliver substantial returns over a longer duration. With each passing year, the compounded sum also increases significantly.

  • Convenience- It is a hassle-free mode of investment. You can also set up auto-debit for the required SIP amount from your bank account. This way money will automatically get deducted each month with a prior reminder.

Working of SIPs 

Compounding of Investment 

If you begin investing Rs. 6000 per month from your 40th birthday, you will have saved Rs. 12 lakhs in 20 years. With an average yearly growth rate of 7%, this investment will increase to Rs. 26.3 lakhs by the time you turn 60. 

On the other hand, if you begin investing 10 years earlier, your monthly investment of Rs. 6000 will accumulate to Rs. 18 lakhs over a period of 30 years. With the same average annual growth rate of 7%, your investment will grow to Rs. 60.6 lakhs by your 60th birthday.

As the money compounded for an extra 10 years, total wealth grew more than double. This example shows the power of compounding even with decent but regular SIP investments.

Amount Invested per month Period Total Amount put aside Growth Percentage Final Amount Earned
Rs. 6000 20 years Rs. 12 lakhs 7% Rs. 26.3 lakhs
Rs. 6000 30 years Rs. 18 lakhs 7% Rs. 60.6 lakhs

From this example, we can easily understand how compounding works, and how it gets better as the time period increases.

Rupee Cost Averaging

  • Rupee cost averaging is a strategy that investors can use to take advantage of market highs and lows for their benefit.

  • When the market takes a plunge, investors end up buying more units of the scheme for the same investment amount.

  • This strategy involves making a fixed amount of investments every month through instruments like mutual funds.

  • By doing so, investors can average out the value of each unit and bring down their average cost per unit.

  • This helps to reduce the overall risk of investing and accrue gains over time.

  • Rupee cost averaging is a popular strategy among long-term investors who are looking to grow their wealth steadily over time.

It is suggested to use SIP calculator to estimate the returns on your SIP before investing.

Illustration 

A real-life example of rupee cost averaging is when an investor invests Rs. 10,000 every month in a mutual fund that tracks the Indian stock market (e.g. Index funds). By buying more units when the market is down and less when it's up, the investor ends up with a lower average cost per unit over time. 

It can result in better returns compared to investing in a lump sum at the beginning.

Advantages of SIPs

Advantages of SIP

In Conclusion

Investing through SIPs (Systematic Investment Plans) is a great way to accumulate wealth over time. By following some basic principles like setting an investment horizon, choosing the right fund, and regular investing, you can get better returns with your SIPs. It can further help you achieve your financial goals and maximize your returns for future.

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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