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Investing systematically for your future and putting it on the backburner is just as damaging for your financial wellbeing as following your friend, family (parents or siblings), colleague, investment guru, or your neighbour investment strategy. It does not help accomplish your goals.

One fine day, on his way home from work, he bumped into his doctor, who inquired of his health and his investment portfolio.

He responded affirmatively to both.

The doctor asked, "How can you be so sure if you haven't come for a follow-up since the last time, I recommended a financial adviser?"

Mitt responded, "Well I didn't feel the need to. After I visited the financial adviser, he explained about financial planning and the personalised investment strategy I should follow. Accordingly, I have started investing diligently for the long term in various mutual funds based on my financial positioning, risk appetite, and my age. Since then, I have been sleeping better which makes me feel healthier."

Doctor probed further, "What about your investment portfolio? Have you reviewed it? How can you be so sure about that?"

Mitt argued, "When you invest for the long term, shouldn't you just let the investment be and forget about it for a couple of years till the time you want it?"

Doctor responded, "Investment portfolio has to be created in cognisance to your financial goals of varying timelines and as per that you invest. If you invest and do not periodically review it, how will you know the performance is in sync to your goal's approaching timeline?

Just as a doctor checks his long ailing patient to give him a health certificate and asks for a follow up to see his progress, a periodic review and tracking of your investment portfolio helps you to weed out the duds from your portfolio to replace new ones that could help you achieve your goals faster".

[Read: Why You Need To Get Your Mutual Fund Portfolio Reviewed Right Now!]

Mitt thanked the doctor and on reaching home immediately called his financial adviser to schedule a portfolio review meeting.

During the review, the financial adviser explained Mitt the importance of monthly SIP-ping into equity funds should not be done beyond a couple of few years (minimum term of five years at least) till perpetuity.

This is because equity investment rewards are seen for longer investment horizons and with SIP you get an advantage of rupee-cost averaging to reduce market volatility coupled with the power of compounding in an endeavour to accomplish your financial goals when you select the right mutual funds only after due diligence.

But since equities are volatile in nature, when you are nearing your financial goal, you must opt for Systematic Transfer plans (STP), which works on the principal of systematic investment of SIP. This facilitates you to transfer your initial invested amount at regular intervals systematically, in a piecemeal manner, into another mutual scheme (as desired by you) of the same mutual fund house.

The STP facility is best suited for investors who wish to completely stay invested, while they transfer funds from one mutual fund scheme to another, from a portfolio review standpoint or for the purpose of systematic asset allocation in the objective of wealth creation.

In today's dynamic market scenario, while one may aim to take advantage of the favourable weather in both equity and debt markets, there is an inherent risk involved. Thus, when taking exposure to these respective asset classes, it is important to adopt a cautious approach, and proceed smartly and prudently.

[Read: Want To Multiply Your Portfolio Returns In A Volatile Market? Read This!]

So, when you are nearing your financial goal within a span of two to one year, slowly reduce your exposure to equity funds and gradually increase your exposure to less risky assets like the short debt funds, ultra-short duration funds, liquid funds, and overnight funds.

[Read: What Should Investment In Debt Funds For Short Term Look Like?]

This strategy helps you grow your wealth and at the same time reduces the risk of overexposure to highly volatile assets and, in turn, loss of capital. Even when you are advancing with age and nearing your retirement years, use STP facility.

Remember with advancing age and decreasing investment time horizon, the willingness to take risk deteriorates.

Table 1: Risk capability diminishes with age

(This table is indicative and for illustration purpose only)

For example, a 35-year-old person can absorb a loss of Rs 5 lakh and forget about it five years later if he earns better returns. That's because he has more time to recover from the bad phase of riskier assets, and therefore they can afford to take higher risk.

In contrast, sustaining a similar loss may not be feasible for a 58-year-old person approaching retirement in the next few years.

Similarly, as you move closer to your investment goal like buying a home or sending your child abroad for higher studies, say in the next two years, you are likely to secure your capital, taking minimum risk and accepting nominal returns.

[Read: How To Improve Your Return On Investments?]

Table 2: Risk capability diminishes with a decrease in time horizon

(This table is indicative and for illustration purpose only)

Thus, consider Systematic Transfer Plan (STP) after few years of SIP when you are nearing your goal or retirement. Debt funds are less risky as compared to equity funds when investing for the short term. Equity funds are suitable for investors looking for capital growth over a long term. Hence, you have a blend of different types of funds to help you strike the balance between both asset classes.

Mitt understood the importance of periodically reviewing the portfolio while investing via SIP and when to opt for SWP, along with its benefits.

I hope you will setup that review meeting with your financial planner without delay.

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