SIP – Systematic Investment Plan, one of the most popular modes of investments in Mutual Funds. It is good to see how people are becoming aware of the investment options available to them. There was always this wrong idea people had with SIPs ‘That it’s meant for only the rich’. No one becomes rich overnight, unless you’ve won a lottery or a game show. What are the chances of that happening to you?
Becoming rich is when you start making your money work for you. It’s a long process, but you have to cut short your expenses or save what money you have left, in avenues that will generate income for you. So next time someone tells you investments are meant for the rich, then ask them ‘How did the rich become rich?
Investing is not easy, there are a lot of factors that need to be considered before investing. Some people are too lazy to do some research and find investments that would suit their needs, so they follow their friends blindly. For some it may turn out well, considering their friend or relative picked a good investment instrument, whereas for some, they may end up losing their money or their money just went down the drain.
I’ll tell you a real-life incident, Anushka a 21-year-old, from a finance background started investing at a very early stage in her life, she thought that since she had a long way to go before she needed the money, equity would be the best instrument for her and she could afford the risk as well. Her investments worked out quite well for her, since she planned very well. On the other hand, her Uncle Rohit, from a non-finance background, thought that he should invest in the same instrument for his retirement, which was just a few years away, but didn’t consult Anushka since it worked out so well for her, he thought it would work out well for him too. So what do you think happened at the time of retirement?
Well let’s just say, it didn’t really work out well for Uncle Rohit. Firstly because retirement is a goal that can’t be compromised, so putting all your money in equity, not a very wise move. Secondly, equity is meant to achieve long time goals and not short term. Thirdly, one of the major reasons is, it is very risky. If you are dicey about your investment options, take a second opinion. Now when I say a second opinion, I don’t mean friends or family (if they have no knowledge of investments.) or else it will be like ‘one blind man following another blind man’, go to a consultant and they will guide you with the right investments and how much to invest too.
‘How much should I invest and where?’ This is a question you always need to ask yourself. Diversification is a must with your investments. Choosing the wrong investment avenue can bring you loss, but investing all your money in one instrument can also cause you the same amount of loss or even more. So you need to make sure you diversify the amount you need to invest in risky as well as non-risky avenues. This is the main strategy to minimize loss.
For all the cricket lovers, let’s associate cricket with investing through SIPs. So all the cricket fans out there, here’s something you can associate your investments to. This will help you understand how many runs you need to win, i.e. is knowing how much you need to invest through a SIP, to achieve your target corpus.
Read here: SIP – The Most Powerful Tool to Build Wealth Through Mutual Funds.
Stay Fit – Awareness:
It is always important for an investor to be aware of the current market conditions. They should be aware of how the top funds are performing. Just how a cricketer needs to stay fit or exercise daily to increase their stamina, so do the investors, need to be aware, to increase their knowledge on the market scenarios. It is not possible to keep a track on all the funds in the market, so always pick the top 5 best funds and track their performance, and accordingly make your choice.
Pick your team – pick your investment options:
A cricket team is formed with diversified players. You can’t have all the best bowlers in one team or the best batsmen in one team. The team has to have a mix of all types of players, like fast bowler, spinners, batsmen, wicketkeeper, etc. If we apply this to investments, then you should always have a mixture of debt funds, equity, liquid, arbitrage, tax-saving funds, etc. Diversification is required to minimize your risk and each different fund will work differently towards your achievement.
Plan of action – Risk capacity:
Just as a batsman or bowler assesses his next strike, the same way an investor has to assess his risk appetite. A batsman’s strike will depend on the ball being bowled, he will assess whether he should go for a six or play it safe. Same goes for the investors, they should assess how the market is performing and then decide whether they are willing to take the risk with big investments or play safe and go with small ones.
Teammates Ranking – Fund Performance:
When you go to choose a fund, always look at how it has performed over the years. Just like how the top players are ranked on their consistent performance, so are the funds. Make sure the funds are performing consistently and choose accordingly.
Batting Second – Fund review:
You have to keep tracking your fund and see how it is performing and if not which fund to switch it to. It is just how the team who goes in for batting second has to analyze the performance of the team who had batted first.
Pressure – Stay invested:
Pressure can make an investor act foolishly. The same goes in a cricket match. When the whole team is counting on the batsmen to make those winning runs, it pressurizes them, which could cause them to make mistakes. So an investor under pressure should stay invested, even though the market may be volatile. Hold on till you reach your goal, because you are bound to profit in the long run.
Falling wickets – Review portfolio:
Sachin Tendulkar India’s no. 1 former cricketer, but even he has been bowled out on the first ball. So even the best performing funds may falter, so you have to be alert and check your investments on a timely basis.
These are the main pointers you need to keep in mind before you decide how and where to invest in Mutual Funds. Who would have thought that, knowing about cricket would one day help you decide how much you need to invest. Now plan your investments correctly and you can win your match. I meant you will reach your goal.