April marks the beginning of a new financial year. This is the time to start planning your investments for the entire year. And this includes starting all your Systematic Investment Plans (SIPs).
Often, people delay this planning by a few months. Many still invest in the latter part of the year, right before they file their taxes. That may not be prudent. This fiscal year, start your investments – and your SIPs – right away in April.
Here are some things to know:
More time to invest: By starting right away in April, you have all 12 months available to use wisely. You can plan better for the months ahead. Budget your big-ticket expenses as well as investment needs. This should include your regular investments to achieve financial goals as well as tax-related investments. After all, you have a semblance of idea about your financial needs right away in April. By planning your taxes as well as investments, you can stay organized.
Spread out your investments: Every experienced investor has a portfolio of assets – Stocks, Mutual Funds of various kinds, Bonds, etc. You may be investing thousands and lakhs of rupees in each of these. With only a few months, you may end up investing a huge lumpsum. However, if you start in April, you have the time to invest in small amounts every month in each of these assets. This way, you have the time and flexibility to invest better.
Lower your monthly outgo: When you spread out your investments, you automatically reduce your monthly outgo. If you had to invest Rs 50,000 every month to meet your target in 4 months, you may only have to invest Rs 20,000 in 10 months – that’s less than half your earlier monthly outgo.
No liquidity worries, greater flexibility: By investing lower amounts every month, you have more money to spare. While you may not have liquidity concerns, what this extra money does is give you the sense of flexibility. If required, you can even increase your monthly spending.
Achievable targets: Alternatively, with more money to spare, you can look at increasing your savings and investments each year. So, not only do your existing goals become achievable, but you can also achieve more goals easily.
Be prepared for emergencies: If nothing, you can use this extra money to improve your emergency fund. You can easily start an additional SIP in a Liquid Fund each month. Not only does it earn better returns than a Savings Bank account, but it also can be used during emergencies. You may not have to liquidate your investments.
Rupee-cost averaging: With a SIP, you buy a certain number of MF units every month at the prevailing rate. This continues irrespective of the market condition – whether it is rallying or falling. This means, you may end up buying MF units at lower rates too. This brings the average cost of your total investment lower. With more months in hand, you have the potential to take better advantage of ‘Rupee-cost averaging’.