SIP Investment: Use SIP to Diversify Smartly

Risk and reward goes hand in hand in investing. The higher the risk, the more likely it is for the return to be higher, and vice versa. Therefore, an important aspect of a long-term investment strategy is to be able to manage the balance between risk and reward as much as possible.

Diversification is the key to risk management

Diversification is the most important tool in risk management. Balancing your risks as part of your long-term investment strategy enhances the scope of stable growth and wealth creation. This can be best achieved by investing in different assets class such as debt, equity, gold, and real estate through mutual funds and by investing across time periods. Because mutual funds invest in different companies within each asset class, they work as a great asset diversification product, thereby lowering investor risk.

Further, multiple SIPs can provide diversification with respect to both asset class and time. Let us see how.

Achieving a diversified SIP portfolio aligned to key investment objectives

Investments should be tied to a purpose. For example, your long-term investment objective could be retirement planning and your child’s education. Your medium-term objective could be creating a corpus for the down payment of your new home. Your short-term objective could be home improvement or foreign vacation. You can have multiple SIPs to meet each of your target objectives.

You can thus diversify your portfolio with respect to your goals as follows:

Short-term objectives: You can harness the benefit of Debt Fund SIPs to meet your short-term financial goals. This is because debt funds are the least volatile and can help in building funds for short-term objectives.

Medium-Term Objectives: SIPs in hybrid funds or balanced funds can help you achieve your medium-term objectives.

Long-term objectives: Equity Fund SIPs are best suited for long-term goals. Within equity funds, you can further diversify your investment into Large Cap, Mid Cap, and Small Cap funds or go for multicap funds.

SIPs allow rupee cost averaging - An important arsenal in risk management

Buy low, sell high—this simple investment rule is quite complex to achieve. SIPs allow regular, staggered investments. Thus, with an SIP, you can average out your rupee cost of investment and safeguard your investment against market ups and downs using SIP app. Since you are systematically investing small amounts, you end up buying more units in the unfavourable market and fewer units when the market is riding high. Thus, you will see the least impact of market cycles on your investment. Further, disciplined investing aids wealth creation and growth in the long run.

How you can use SIPs effectively to diversify your portfolio

Irrespective of whether you are investing in different funds or a fund that invests across different asset classes, SIP helps you achieve diversification across asset classes. Further, you can stagger your investments on different dates of the month. Let’s say you have 3 different SIPs spread across funds and asset classes, choose a different date of the month for each SIP. Thus, you are lowering your risk of market timing. Choosing different dates also evens out your exposure to adverse market movements within that month.

Thus, SIPs allow one to truly diversify investments, not only with respect to asset classes but also with respect to time. Achieving a well-diversified portfolio is a requisite for long-term wealth creation.

Work on diversifying your portfolio today. karo Shuruat SIP se!

Disclaimer: This article represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Past performance may or may not be sustained in the future.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.