Momentous occasions such as buying a home or a vehicle, marriage, retirement and others, are goals that need to be planned to ensure it runs a smooth course. In most cases, it may not be possible to spend a lump sum, unless a financial windfall or a stroke of good luck can pay for significant expenses. Hence, planning for goals that are some years away is a task that must begin today.
Say, you have got a new job and aim to buy a house in the next five years. You can choose to borrow when it’s time to pay or save over the years to make the down-payment for the home. In this regard, systematic investments in mutual funds can work as an efficient savings tool than conventional options to accumulate your target corpus.
Role of SIPs in accumulating a corpus
Small, yet steady investments can be vital in building wealth in the long run. Here’s what you need to know in how to invest in SIP.
A Systematic Investment Plan (SIP) is a mode of investing a fixed sum, recurrently, in a mutual fund scheme. Through a SIP investment, you can buy fund units regularly on a specified date each month. When you invest in mutual funds through the SIP method, you can meet your target corpus and the goal you wish to achieve.
Why SIP matters
As an investment facility, you can deposit a minimal amount through a SIP, every month at the current NAV (Net Asset Value). By averaging your investment cost over the specified investment tenure, you get the flexibility of picking your SIP amount and frequency.
You get the opportunity to invest within a specified time frame without having to worry about market volatility. Further, the power of compounding and rupee average costing are essential benefits that can ensure you meet your corpus and benefit from your mutual fund investment in the long-term.
Advantages of SIP investment
Here are some benefits of investing through the SIP route.
You can begin investing in a SIP mutual fund with as little as Rs.500 each month in the frequency you desire. You can opt for a monthly, quarterly or even a daily SIP option that some mutual funds may offer.
Helps to stay disciplined
You can provide a standing instruction to your bank to debit an amount from your savings account directly. This can ensure an orderly and controlled method throughout your investment duration.
Compounding that works for you
A tiny investment can turn into a significant sum in a matter of years, thanks to the power of compounding. The benefits you receive by investing through a SIP can be augmented by the compounding effect. It ensures you receive profits not only on your capital but also on the yields. This means that over time your money grows as the money you invest earns profits; while your returns also bring in returns.
No worry of timing the market
Through a SIP, you become free from being continually on the lookout to time the market. It can be challenging and time-consuming to know how and when is the right time to buy or sell. A risky task, timing the market is ill-advised for people who have a long-term goal to achieve. As a disciplined and regular investment mode, SIPs can be instrumental in eliminating the need to track market movements.
To understand what is a mutual fund, it can help to read on the subject and browse through various mutual funds. Based on your investment profile, financial goal, time horizon and risk appetite, make a comfortable choice from a wide variety of mutual funds and meet your goals without worry.