The Benefit Of Having One SIP Per Goal

If you think you know everything about systematic investment plans (SIPs) of mutual funds, you are in for a surprise. In a recent interview, Lalit Sharma, Zonal Manager, Investor Education & Distributor Development and Digital Initiatives, Aditya Birla Sun Life Mutual Fund, broke down known and unknown concepts about SIPs and, in the process, helped understand how to make the most of SIPs. The webinar was moderated by Ankita Verma, Assistant Editor, Outlook Money.

For example he explained how SIPs are not just a simple mechanism to invest, but are flexible tools that offer you a lot of options. Sharma explained: You can set a step up so your monthly investment climbs with your pay. Use a value or trigger SIP so you add a little more when prices are cheap and ease off when they are dear. Keep a perpetual setting so wealth does not expire because a calendar date slips. One should pause SIPs only in situations of real cash stress, not because of a headline or market noise that makes you jittery. Don’t track the markets every day. “Let rules do the heavy lifting,” said Sharma.

The product is multi-talented when it comes to multiple goals, and one strategy that can work for you is: “One SIP per goal,” he said. And when it comes to goals, the first one should be building a 6-12-month emergency pot so short-term shocks are never able to affect long-term compounding. For goals that are to be fulfilled within five years, use debt funds. For life goals that are years away, let equity work quietly over the long term.

When describing how SIPs really work, he gave the example of his niece, who is financially disciplined. She set up an SIP using a student stipend, sat through days when the markets were in the read, and learnt what textbooks state by observing. “When prices fall, your SIP buys more units,” he said.

It is only through patience that you can enjoy the fruits of long-term compounding, and to explain that Sharma gave his own example. He once redeemed SIPs he had opened years ago to fund a deposit for his house. “I killed a compounding engine by doing that,” he admitted.

So how do you go about such decisions? Have separate kitties for short and long terms. Review your portfolio and funds once a year, and change only when something is truly broken.

If you want practical rules you can actually live with, sharp questions that cut fluff, and lines you will quote to your friends, watch the full conversation on Outlook Money’s YouTube channel today.

Disclaimer: This webinar is an investor education and awareness initiative by Aditya Birla Sun Life Mutual Fund in collaboration with Outlook Money.