How to design your SIP portfolio in 2024?

Investing through Systematic Investment Plans or SIPs has become a popular way for long-term investors to participate in the growth of the stock markets. With regular monthly investments, SIPs help investors average out their purchase cost and benefit from rupee cost averaging. With already a couple of months into 2024, here are some tips to help design an effective SIP portfolio to meet your long-term financial goals.

  • Choose your investment objectives

The first step is to be clear about your investment objectives. Are you investing for goals like child’s education, retirement or wealth creation? Determining your goals and timelines will help you choose suitable mutual funds. Funds with longer time horizons of 5-10 years or more are ideal for goals like retirement that are 5-10 years away. You may want to include large-cap equity or diversified equity funds in your portfolio if time is on your side.

  • Use an SIP calculator

An SIP calculator can help you estimate the potential returns from your monthly investments into different funds over time. Most SIP calculators allow you to input the monthly investment amount, expected rate of return, tenure of investment and frequency of SIP installments. This helps understand how different funds may help achieve your goals. For example, assuming a 12% long-term return, a Rs. 10,000 monthly SIP for 10 years could grow to around Rs. 1 crore.

  • Plan your asset allocation 

Diversifying your investments across different asset classes is important to manage risk. During your portfolio planning, consider allocating around 60-70% to equity funds and the balance to debt funds. Among equities, aim for a mix of large-cap, mid-cap and small-cap funds to participate across market caps. For debt, focus on short to medium duration funds. Rebalance your portfolio periodically to maintain the target asset allocation suitable for your risk profile and goals.

  • Choose suitable fund categories

Having clarity on your asset allocation helps zero in on the right fund categories. For steady long-term gains, opt for diversified equity funds investing in a mix of large, mid and small-cap stocks. Index funds offer lower-cost passive exposure to markets. For higher returns, consider mid and small-cap funds with a long investment horizon of 7-10 years. Debt funds like short duration or banking & PSU debt can balance equity risks. Hybrid schemes are suitable all-in-one options. 

  • Focus on top funds 

Not all funds deliver similar returns. Choose only those funds that consistently outperform their categories on a 3-5 year basis based on past performance. You can shortlist top funds by checking their 3-5 year rolling returns and performance quartile rankings. Also consider long-term fund managers at the helm. Low portfolio churn and discipline are virtues during volatile markets. Track direct plans which are lower cost.

  • Start your SIPs sooner

By planning your asset allocation and fund choices in early 2024 itself, you get the benefit of rupee cost averaging right from the beginning of the next financial year. This allows your investments longer time in the market to compound and achieve the benefits of growth. Try to maintain your SIPs consistently through market ups and downs to maximize gains. Increase your SIP amounts gradually over the years in line with salary hikes to boost your investments.

  • Rebalance and review periodically

Review your portfolio and rebalance asset allocation periodically, say once annually, to maintain your target allocation. During market highs, consider paring equity exposure and raising debt allocation, and vice versa when equity markets are low. Redeem units from outperforming funds and add to underperforming funds to improve returns over time. Make changes to your funds or investments if the funds deviate from stated objectives over time. Stay invested for the long term to achieve your goals through SIPs.

By following the steps to properly plan your asset allocation, choosing suitable categories and top performing funds early in 2024, and reviewing periodically, you can effectively design a diversified SIP portfolio with potential for long-term wealth creation. Regular SIPs in a disciplined manner may help achieve various important financial milestones and goals over time. Do factor in risks and choose SIPs aligned with your financial objectives, time horizon and risk profile.