Through systematic investment plans (SIPs), you can grow your wealth responsibly over time with consistent investments. But if you want to achieve those goals at an accelerated rate, the key is to properly allocate your funds across different asset classes based on your financial goals and risk appetite. That means following a broad base allocation.
Broad base allocation is simply the process of diversifying your investments across multiple asset classes, such as stocks, bonds, mutual funds, ETFs, etc. With such diversification over multiple asset classes, you are reducing your exposure to any single type of investment or any specific sector within that investment class.
Read on to find out how you can take this approach to double your SIP investment and reach your goals twice as fast!
- Start multiple SIPs for different sectors
Different sectors perform differently depending on market conditions, so it’s important to invest across various sectors while creating a mutual fund investment portfolio through SIPs. This helps balance out the volatility in the stock markets as some sectors might offer great returns during a particular period but may suffer losses during other periods due to specific sector-related factors or other macroeconomic events. As such, proper diversification may help offset the losses.
You can even start multiple SIPs for different sectors, but it is also important to research which sectors have the growth potential and then invest accordingly, as this can help maximise returns over time.
- Step up your SIP investment plan
One way to double your SIP investment through broad base allocation is by stepping up your contributions. This means increasing the amount of money you regularly invest by a certain percentage, such as 5000 in 2023, 5000+15% in 2024 and so on.
This approach helps ensure that even when market conditions are unfavourable for one particular class of assets—such as stocks during an economic downturn—you can capitalise on any available opportunities through those undervalued asset classes, which become available at lower prices due to factors like inflation or recessionary periods.
Exchange traded funds or ETFs provide access to multiple asset classes and markets, thus enabling you to diversify your portfolio. ETFs are funds that track an index, such as the Nifty or BSE Sensex and invest in all the stocks in that index in proportion to their weightage. ETFs provide you with exposure to broader markets without having to pick individual stocks.
Moreover, when you invest in ETFs through an SIP, you can take advantage of rupee cost averaging over time – where your regularly invested SIP is used to buy more ETF units at lower prices during bear markets. Conversely, during bull markets, relatively fewer units would be purchased from your SIPs. This way, your investment cost averages out, and you end up buying more units at lower prices over time which helps increase your returns significantly over time.
Deciding to double your SIP investment is no easy task, but with a broad base allocation strategy, it can possibly be achievable. The key is to research and compare different mutual fund plans, invest consistently, closely monitor the markets and, most importantly, get regular financial advice from experts.