Strengths and Opportunities in Mutual Fund SIPs
Creating a strong portfolio is an important part of financial planning. You may consider a mix of numerous investment vehicles such as insurance, Certificate of Deposits, Fixed Deposit, gold, and real estate, among others. One of the most popular tools to enhance your portfolio is mutual funds.
You may consider a lump sum payment or a regular payment structure known as a Systematic Investment Plan (SIP). The latter option allows you to invest a certain amount at regular intervals for a period of time. You may choose the frequency based on your choice, either monthly, quarterly, half-yearly, or yearly. The invested amount is used to purchase many units based on the ongoing Net Asset Value (NAV). Through regular contributions, the number of units keeps being added to your account.
Before making a SIP investment in mutual funds, it is necessary to understand its strengths and opportunities. Following are four strengths and opportunities of investing in a Systematic Investment Plan.
- High performance
By far, performance is the most critical strength of mutual funds. The fund must perform well in the market. You may consider investing in stocks for a longer time frame to reap greater returns.
- Historical record
Another major strength of a mutual fund SIP is its historical record. If stocks of well-established companies have a track record of success, then the brand name and the historical record will prove to be a major strength. For example, if the stock of ABC Company has had a good history of performance over the last decade, it means that the historical record of the company’s stock performance has become its strength.
- Combating market volatility
Another strength displayed by SIPs is the inbuilt ability to combat market volatility. The stock market is prone to short-term fluctuations. Investing in a Systematic Investment Plan, however, help seven out the volatility effectively. Through its steady track performance, you may obtain healthy returns without bearing a negative effect of stock market volatility.
- Better opportunities
While choosing between various prospective mutual fund options, it is necessary to look beyond the stock’s performance. You may consider the overall market trends too. You may choose a stock that is best positioned to take advantage of such trends.
Another opportunity in this avenue is the ability for an average-performing stock to outperform due to a management change and changing economic trends. A change in the government regulatory environment presents itself as an opportunity for mutual fund growth. Such a change affects various industries, as well as the funds of the concerned sector.
It is necessary to understand the strengths and opportunities before you invest in a SIP. By doing so, you may take advantage of them and yield higher returns on your mutual fund investments.