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There are two types of investment modes, one of them are systematic investment plans or SIP. This variant of investment mode is known for being different from lump-sum. These plans are a mutual fund payment mode in which a fixed amount is deducted from your bank account regularly (monthly debits being a common example). This type of payment for mutual funds makes sure that you don’t fall under the pressure of arranging the funds for a lump-sum investment. Furthermore, SIPs don’t end up burning a hole in your pocket. And, by opting for SIPs, to pay for the mutual fund investment, you can choose to leave a standing instruction with the bank. With a standing instruction, part of your monthly income is transferred automatically from your savings bank account to your mutual fund portfolio. This feature is very helpful in case you forgot the payment date. Standing instruction ensures that the mutual fund investment goes through smoothly.
There are many reasons why you need to consider registering for the SIP route over the lump-sum one. One of those reasons is systematic investment plans are known for their potential of offering higher returns in the long term as they generally come with the guarantee of substantial growth in investments. Also, as a mode of investment for mutual funds, these plans are regarded as a balanced investment choice. Through this plan, more than one unit is purchased whenever the price of shares is low. On the other hand, fewer units are bought whenever the price continues to grow. So, as time passes by, the cost of investment is lower than the actual cost. Moreover, these plans are considered a prudent choice for investors who are seeking a deduction on their income tax returns.
Based on the information provided, if you want to allocate funds to mutual funds through SIP, but don’t know how to invest, read below:
- Ascertain investment objective and risk appetite:
Before investing, it is of utmost importance to understand your risk tolerance. In most cases, the higher the age and financial obligations, the lower the risk tolerance of an investor. However, the younger an investor is and the lesser the financial obligations, the higher their risk tolerance. There is one thing you need to remember about investing. If you want to enjoy a higher return on your investment, you need to have a higher risk appetite. In case you don’t have a high-risk appetite, you need to increase it. After assessing your risk tolerance, it is important to identify the reason behind your decision to invest. It is crucial to know the objective behind investing as it will help in creating a mutual fund portfolio that consists of a mix of equities and debts.
- Choose a mutual fund variant:
One thing you need to remember about mutual funds is that they are not a monolith. Your choice of mutual fund variant should be dependent on things like your risk profile and personal financial goals. It is also important to look up the fund’s performance in the last few years while opting for a mutual fund scheme.
- Set the date for deduction:
Under systematic investment plans (SIPs), you can opt to use the feature of standing instructions. Through this feature, your money gets deducted automatically from your bank account. However, while signing up for this feature you are also required to choose a date when it is convenient for you to pay.
- Ascertain the amount of SIP:
A systematic investment plan is regarded as a convenient way to fulfil an investor’s financial goals. They can calculate the SIP amount that’s required for meeting their long-term financial goals.
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