TIPS TO INCREASE YOUR MUTUAL FUND/SIP RETURNS

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Mutual funds are one of the investment vehicles that grabbed the attention of several investors amid the COVID-19 pandemic. And why shouldn’t they? Mutual fund investments offer several benefits to retails investors in the form of professional management, transparency, higher returns on investments (ROI), portfolio diversification, power of compounding, etc. You can choose to invest in mutual funds either through a one-time lumpsum investment or through regular SIP (systematic investment plan) mode of investment. In this article, we will understand how you as an investor can work to increase your SIP mutual fund returns.

Tips to increase mutual fund/SIP returns

Following are some of the tips that an investor can use to increase their SIP mutual fund returns:

  1. Do not stop SIP instalment during a bearish market cycle
    Usually investors pause or stop their SIP investments during a bearish phase. However, experts do not advise this as one cannot enjoy the benefits of rupee cost averaging on their SIP investments. Through rupee cost averaging, an investor ends up accumulating more mutual fund units when the markets are at its bottom and vice versa. This helps an investor to average the total investment cost and ultimately increase your SIP returns.
    What’s more, an investor can capitalize during a bearish market cycle by investing their surplus amount of money with the help of top-up SIPs or step-up SIPs. Top-up SIPs can help an investor reach their financial goals sooner than they anticipated.
  2. Always go for the long term performance of the mutual fund scheme
    Comparing just the recent performance of a mutual fund scheme against their peers might not be an appropriate factor for choosing mutual fund schemes that offer better runs. One of the deciding factors during mutual funds comparison can be the long-term performance of a mutual fund scheme. You might consider comparing the performance of the scheme against underlying benchmark indices and peer funds across different time periods, for say 3 years, 5 years, 10 years, etc. This will offer a clearer picture about the performance of the mutual fund scheme over a complete economic cycle.
  3. NAV of mutual funds should not be used as a factor to compare mutual funds
    Net asset value or NAV of mutual funds must not be considered as a deciding criteria as to whether a fund is cheap or not. This is one of the most common mutual fund investment mistakes that an investor is likely to commit. Investors often run after mutual funds with lower NAV. Mutual fund schemes that have been into existence for a longer period would have a higher NAV than younger mutual fund schemes. Hence, an investor must realise that a higher NAV or a lower NAV is irrelevant to them. Instead, an investor must look for parameters such as past performance of the scheme against their peers along with the future prospects of the scheme outperforming their benchmark indices.

You can use an SIP calculator to evaluate the future value of your mutual fund investments. Almost all fund houses and AMCs (asset management company) offer this facility to their investors. Happy investing!