Portfolio : A collection of investments owned by the same individual or organization.
Will : legal declaration of how a person wish his/her possession to be disposed after their death
Fund : An amount of money saved or collected for a particular purpose
Return : Profit or loss derived from an investment
Investor : An investor is any party that makes an investment.
A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.
It may look very strange when everyone is advocating Mutual Fund Sip for long term, what is the necessity for this debate on ‘Is Mutual Fund SIP for Short term or long term?’. Before going into this, we will see what SIP & Mutual Fund is?
SIP vs Mutual Fund:
SIP is a method of investing in mutual fund.
When you invest in mutual fund, you can invest in two ways. One is Lump sum Mutual fund investment. where you invest your money at once. Another method is SIP i.e., Systematic Investment Plan where you invest same proportion of money at regular intervals.
Timeframe for Mutual Fund SIP:
Theoretically doing a Mutual fund SIP for long term will work for investors. But for practical reasons we need to commit a Mutual Fund SIP for short term. That is we need to break that long term into many 6 months or 1 year periods and commit your Mutual Fund SIP for first 6 month or 1 year.
Then at the end of 6 month or 1 year renew your Mutual Fund SIP for another 6 month or 1 year if it is still a good mutual fund for long term investment. You need to renew like this till you complete your predetermined long term period.
You may think it is an unnecessary paperwork and waste of time. But you will be completely convinced when you have finished reading this article.
Contribution towards Mutual Fund SIP Changes:
How much you are contributing towards Mutual Fund SIP changes over a period of time.
Portfolio Review and Mutual Fund SIP:
Also it gives you a chance to review your portfolios with your financial advisor / investment planner once in 6 months or 1 year.
- The scheme which you have chosen for Mutual Fund SIP is performing well when compared to its peers or not? Is that still a good mutual fund for long term investment? You need to review this periodically. The scheme may turn out to be a laggard.
- The scheme may be performing well when you have chosen for doing mutual fund SIP. But over a period of time, it could have derailed from its performance. This is something like our cricket players. They will be in a good form in the game for some period of time. Then they will lose their form after sometime. So you need to periodically check up whether the fund is performing NOW or not.
- If you are committing a Mutual Fund SIP for 10 years, then the financial advisor / investment planner may not be coming back to you whenever you call him for reviewing your portfolio
or you need to roam around to find how to close sip mutual fund, as you are not in touch with your advisor for a long time. If you commit for 6 months or 1 year he or she will be definitely coming to you for renewing the Mutual Fund SIP. You can have a review with him or her at that time.
When you commit Mutual fund SIP for long term, generally we ignore to review it. It may generate poor returns. You can avoid this by periodic review.
Equity Exposure in Overall Portfolio and Mutual Fund SIP:
How much equity exposure you can give to your overall portfolio can change the amount of Mutual Fund SIP in equity and debt.
- As the age goes up, your ability to take risk comes down. So you need to change your equity mutual fund SIP contribution periodically.
- How close or distant you are to achieve your financial goals will also decide your equity exposure. If you have got long period to achieve your financial goal then you can have more equity exposure. When you have short period to achieve your financial goal, then you need to reduce your equity exposure.
- Rebalancing your portfolio based on your predetermined asset allocation will also decide your equity exposure.
All this can change your Mutual Fund SIP amount in equity funds.
Final verdict on Mutual Fund SIP:
So committing a Mutual Fund SIP for long term looks good on paper. For practical reasons we need to commit for short term and renew it at the end of every short term till achieving our financial goals.
In this regard, instead of committing a Mutual Fund SIP just like that, having a long term financial plan and committing Mutual Fund SIP based on that plan will be really fruitful. This will make a solid difference in achieving your financial goals.
If you are REALLY inclined to make this solid difference in achieving your financial goals by creating a financial plan, then I would suggest you to test-drive our services by opting for