How can you maximize your SIPs to reach your financial objectives? These four methods

How can you maximize your SIPs to reach your financial objectives? These four methods

By investing for the long term, aligning your SIPs with your financial objectives, choosing a step-up SIP, and doing away with the market timing component, you may maximize the return on your investments.

Every SIP should always have a defined financial aim associated with it.

The majority of mutual fund participants use systematic investment plans, or SIPs, as their preferred method of investing. There were an astounding 6.97 cores of mutual fund SIP accounts as of August 2023. Conversely, 19.59 lakh pre-existing SIPs (including those with completed tenure) were canceled and 35.92 lakh new SIPs were established.

For the last several months, the number of SIP closures has increased monthly. When the fiscal year began in April 2023, there were 13.21 lakh monthly SIP closures.

Tell us how you plan to capitalize on your SIPs and extend their duration.

1) As soon as you begin earning, begin your SIP

Ideally, you have to begin investing as soon as you begin to get income. It allows the power of compounding to work its magic over time for your mutual fund SIP. An extended time horizon raises your chances of generating larger profits and building up a larger sum.

For instance, at the age of 25, Ajay began a Rs. 10,000 monthly SIP. Ten years later, at the age of thirty-five, Vijay began a monthly SIP of Rs. 10,000 in the same mutual fund program. They both want to invest until they are sixty years old in preparation for retirement. A 12% CAGR return is what they are hoping for. Let's watch to see how much money they end up with.

After 35 years at 12% interest, Ajay would have Rs. 6.43 crore from Rs. 10,000.

With 12% interest over 25 years on Rs. 10,000, Vijay would have Rs. 1.88 crores.

Ajay began investing 10 years before Vijay, according to the table above. Consequently, Ajay has a corpus that is almost three times larger than Vijay's. Generally speaking, you will amass a larger corpus the longer your investing time horizon.

2. Align your SIPs with your financial objectives

Every SIP should always have a defined financial aim associated with it. Creating a retirement or education fund for your children, saving for a down payment on a house, launching a company, and other financial objectives are examples of various financial objectives.

There won't be a temptation to redeem your SIPs until your financial objective is met if you link them to your goals. It will help you become a more methodical long-term investor.

3) Purchase a step-up SIP as opposed to a standard SIP

You might choose to raise your yearly SIP amount with a step-up SIP. You may choose to have a set yearly increase or a percentage of your starting amount. You may raise your SIP investment by 5–10% a year in accordance with an increase in your yearly income.

For instance, at the age of 25, Ajay and Vijay began a monthly SIP of Rs. 10,000 in the same mutual fund plan. Vijay chooses the step-up option, which increases the SIP amount by 5% annually. They both want to invest until they are sixty years old in preparation for retirement. A 12% CAGR return is what they are hoping for. Let's watch to see how much money they end up with.

Vijay chooses to increase the monthly SIP amount by 5% annually, as the table above illustrates. Consequently, Vijay's corpus exceeds Ajay's by almost Rs. 2 crores.

4) Never attempt to timing the market by skipping a SIP

There may be times throughout your investing adventure when the market will climb significantly in a little amount of time. Additionally, there will be times when the market crashes hard. Certain investors attempt to anticipate these market shifts and adjust their investing approach appropriately. They either begin new SIPs or halt or redeem their current ones. Put simply, they attempt to timing the market, which is challenging. Even the greatest specialists may make mistakes when it comes to market timing.

Because of this, you should never attempt to timing the market by skipping a SIP. Rupee Cost Averaging (RCA) is an advantage that a SIP offers you over the long term. You purchase more units of your mutual fund scheme when the market declines and lowers the NAV. The total value of your units increases when the NAV of your mutual fund scheme rises as a result of an increase in the market.