How to build a healthy investment portfolio through systematic investment?

November 23, 2022

Introduction

Saving is as important as earning and spending. It is best to start investing from the start of your career when the responsibilities seem to remain light. With solid financial planning, we can achieve our goals one by one. To attain it, SIP is a solid investment option, to begin with. Even before you invest in SIP, you can easily check the prospects of your planning by using a SIP return calculator, easily available online. Here we will focus on the methods of SIP investment to ensure a solid and healthy financial portfolio.

What is a SIP?

SIP or Systematic Investment Plan, is a hassle-free mode of regular investment at fixed intervals towards mutual fund schemes. Through SIPs, you can well plan your future investments for achieving different financial goals in the long run. You have to determine the target amount and your planned investment amount at regular intervals in a particular MF scheme or multiple schemes. An online SIP return calculator may come in handy in this respect. 

A SIP is in itself not an asset, but simply a mode and method of mutual fund investments. Any contributions that you wish to make towards your SIP get automatically invested in the chosen mutual fund scheme(s). 

The working strategy of SIP

There are three basic stages involved with the working of SIP:

  1. First, you need to select a befitting MF scheme in which you would like to invest.
  2. The following step is to choose a convenient investment frequency. The best is the monthly frequency, especially for salaried individuals. However, it can be weekly, fortnightly, yearly, etc., depending on your convenience. 
  3. Once these factors are sorted, you can easily set up your account using both online and offline modes. However, the online method is more convenient and popular these days.
  4. At regular intervals, the set amount will be auto-debited from your registered bank account.

Building up a healthy MF portfolio through SIP

There are no golden rules for creating an ideal mutual fund portfolio. However, you must follow two basic principles while setting it up: your investment must be in sync with your financial targets and the second one is disciplined maintenance. 

  • Start your SIP and tag each investment to a specific goal

Since SIP is the most convenient option, you must begin with at least one SIP. But before investing, you must set a financial goal that you would like to achieve once the investment term completes. This is essential because you will maintain a clear goal. It can be purchasing a new car, a new house, a foreign trip, children’s education, marriage, retirement fund, etc. 

A clear answer to these will essentially determine the asset allocation procedure. You can easily tag your MF investments to long-term, short-term or mid-term goals. Moreover, the investment period will even affect your choice of mutual funds. Not every type of mutual fund is equally favourable for fulfilling such a wide variety of targets. 

  • Research and Homework

Before investing in any mutual fund SIP scheme, it is best to do thorough homework and research regarding the scheme. The funds that you seek to buy must be in proper sync with your goals. You simply cannot fulfil a low-risk goal by purchasing a high-risk fund and vice versa. There are plenty of choices available to you like equities, debt funds, hybrid funds, regular options, direct options, growth and dividend plans, etc. Depending on your targets, income, market conditions, and risk appetite proceed accordingly. 

  • Split MFs into satellite and core holdings

The core portfolio implies the ones which remain tagged with mid-term and long-term goals. Under normal circumstances, you never tend to disturb these funds, except for certain pressing reasons. 

The satellite portfolio is by nature opportunistic, always aiming for alpha. However, the sector funds must be an essentially small component and you can choose between thematic funds, sector funds, gold funds, index funds, etc. You should never try for alpha with your core holdings as it carries much more risk.

  • Regular monitoring

You must not sit quietly after creating an MF portfolio. You must monitor and review it often, especially your core portfolios. When the valuations are salivating adding enhanced exposure is the key and vice versa. Regular monitoring will reveal if you require to enhance your periodic outlays or play riskier. Your judgement must be based on time-based milestones that you have previously set. For example, if you set a 10-year-long goal, then after 5 years you can well understand if you are doing right or not. 

Conclusion

From the above discussion, it is evident that SIP is one of the most effective means of investment, especially when tied to a specific goal. Moreover, you utilise an online SIP return calculator to know the prospects of your investment.