The importance of staying invested over the complete life cycle
People have a tendency of terminating their SIP schemes as soon as they see a drop in the market. This defeats the whole purpose of investing via the SIPs. Staying put with the SIP over its entire cycle enables you to bank on both the upward and downward movements of the market, apart from averaging out the buying price. If you exit during the market lows, you forego the chances of gaining more number of units when the prices are low. Generally, it is advised that SIPs should have a 3-5 years or even a longer horizon to tackle market volatility.
Using Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs)
Once you close in on your financial goals, you need not wait till the last moment and to withdraw the whole amount in one go. Rather you can make use of Systematic Withdrawal Plans to pull out money at regular intervals, thus staying invested as well as meeting your financial needs. This as a strategy is generally used to park excess money in debt funds and gradually over a period of time move to equity funds.
The importance of linking the SIP to some financial goal
Just like any investment, it is important that you link your Systematic Investment Plan to your financial goals. Losing sight of your financial goals can result in making haphazard investments. It's important that you clearly list out your goals (based on priority), fixtime periods for their achievement and finally base your buying decision on the fulfilment of each one of those goals. The main benefit of taking this approach is reduction in risk associated with market timings. As you invest consistently over a period of time, you'll be able to significantly reduce the negative impact of market downturns.- See more at: https://www.myuniverse.co.in/learn/investing/mutual-funds/maximize-your-mutual-fund-sip-returns#sthash.K4X89R2r.dpuf