Just like any other types of investment, SIP investment includes both short-term and long-term investments. However, which approach is ideal for your investment portfolio? This article aims at answering that question for you. But first, let us recall SIP and its workings.
What is SIP?
Systematic Investment Planning or SIP is a method of investing in mutual funds. You can make a lump sum investment or you can choose to invest in mutual funds via a monthly SIP. A monthly SIP is nothing but a fixed investment amount that you pay every month. SIP is one of the most economical ways to invest in mutual funds. However, if you are wondering how to invest lump sum in mutual funds, then you can do so by a lumpsum investment or SIP investments. You can split your lump sum in 2-3 liquid funds and then move some amount into equity, debt or balanced funds, depending on your risk profile and financial goals.
SIP: Long Term or Short Term
Usually, an investor commits to long-term SIP investments to achieve their long-term goals. However, that being said, you can also commit to short-term SIP investment. You can do this by breaking the long-term investment period into 6 months or a year. At the end of this period, you can renew the scheme you have invested in if it has generated good returns for you.
Moreover, when you first start a SIP, it would usually be a small amount as you are at the start of your career. As your life progresses and you get more responsibilities, your SIP amount will change over time. You can then invest more as per the hike in your salary. You would have to invest more if you need to build a large corpus of money. Hence, when your SIP is at the end of the short-term time frame, then you need to keep an eye on your cash flow. Depending on this, you can renew your SIP for a higher or lower amount.
When you choose a short-term investment horizon, you get the chance to review your portfolio before each renewal. Along with your financial advisor, you can check whether the scheme you are investing in is generating good returns for you. Is it worthy of a renewal for long-term investment? Periodical review of the scheme is always helpful to make a calculated decision.
When it comes to equity exposure for your overall portfolio and mutual fund SIP, it will change depending on how much exposure you can afford to give. This will also change the amount of your SIP in debt and equity funds. It may also happen that as you age, your risk-taking ability will come down. Hence, it is vital to change your SIP contribution periodically. For long-term goals, you can have more equity explore and vice versa.
To conclude, you can take the short-term investment route and renew it at the end of the term once you have achieved all your financial goals. You can make use of the SIP calculator to get an approximate idea of your returns. Happy investing!