It may look very strange when everyone is advocating Mutual Fund Sip for long term, what is the necessity for this debate on ‘Is Mutual Fund SIP for Short term or long term?’.
Time frame for Mutual Fund SIP:
Theoretically doing a Mutual fund SIP for long term will work for investors. But for practical reasons we need to commit a Mutual Fund SIP for short term. That is we need to break that long term into many 6 months or 1 year periods and commit your Mutual Fund SIP for first 6 month or 1 year.
Then at the end of 6 month or 1 year renew your Mutual Fund SIP for another 6 month or 1 year. You need to renew like this till you complete your predetermined long term period.
You may think it is an unnecessary paperwork and waste of time. But you will be completely convinced when you have finished reading this article.
Contribution towards Mutual Fund SIP Changes:
How much you are contributing towards Mutual Fund SIP changes over a period of time.
Portfolio Review and Mutual Fund SIP:
Also it gives you a chance to review your portfolio with your financial advisor / investment planner once in 6 months or 1 year.
When you commit Mutual fund SIP for long term, generally we ignore to review it. It may generate poor returns. You can avoid this by periodic review.
Equity Exposure in Overall Portfolio and Mutual Fund SIP:
How much equity exposure you can give to your overall portfolio can change the amount of Mutual Fund SIP in equity and debt.
All this can change your Mutual Fund SIP amount in equity funds.
Final verdict on Mutual Fund SIP:
So committing a Mutual Fund SIP for long term looks good on paper. For practical reasons we need to commit for short term and renew it at the end of every short term till achieving our financial goals.
In this regard, instead of committing a Mutual Fund SIP just like that, having a long term financial plan and committing Mutual Fund SIP based on that plan will be really fruitful. This will make a solid difference in achieving your financial goals.
(The author is Ramalingam. K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at firstname.lastname@example.org)