Top Rules Of Investing In SIPs (Systematic Investment Plans)

Rule No. 1: Understand how SIPs work

SIPs do not provide a fixed interest or constant rate of return. In fact, there may be extended periods of time when your SIPs may be in the red or not significantly profitable – and vice versa. Start off by understanding and accepting this fact, and you’ll already be ahead of the curve!

Rule No 2: Play the Long Game

Starting a SIP for the short term is futile and may potentially lead to losses. We categorically discourage clients from starting short term SIPs that are speculative in nature or being started “just because markets are looking good”. A minimum time horizon of 5 years is essential for equity SIPs, and a preferable time horizon is 10 years or more – as that’s when the real effects of compounding start kicking in to create wealth for you. So invest the amount you’ll be comfortable putting away for the long term - and not a rupee more than that.

Rule No 3: Don’t “Churn & Burn” 

If you’ve chosen a good set of funds to begin with, there’s limited (if any) value addition that you’ll achieve from ‘churning’ your investments or ‘replacing non performers with better performers’ regularly and so on. Keep your SIPs running in these long term high performers unless something changes dramatically. Frequent churns are bound to affect SIP returns negatively.

Rule No 4: Link them to Goals

Linking your SIPs to tangible, quantifiable and important life goals is a brilliant idea! Before you start your SIP, ask yourself exactly what you are saving for. Align your SIP’s to specific, measurable and realistic goals (for example: “Rs. 5 crore at my retirement when I turn 60” or “Rs. 25 lakh by the year 2020 for my daughter’s education”). This actually makes it infinitely more likely that you’ll save in a disciplined manner, keep your SIP’s running for the long term, and actually end up achieving those goals! When you can attach a real outcome to the purpose of your saving, you’re far more likely to actually work towards that goal rather than saving blindly without an objective.