We all earn money in different ways. While it is good to have a source of income such as a job or a business, it is rational still to have more than one source of income for long-term wealth creation. One very extrusive and easy way to assure wealth creation, which is advisable for all, is a Systematic Investment Plan (SIP) in mutual funds. Mutual Fund is now familiar to most investors as they are heavily popularized by social media, TV, newspapers, and magazine advertisements. Business channels’ financial literacy programs are also educating investors about the Mutual Funds benefits. People are enthusiastic About knowing the concept in detail. They are now eager to take well-informed financial decisions to grow their wealth.
Mutual Funds are suitable for all investors having short, and long-term horizons. An investor can invest in a mutual fund in two different ways. The first one is Lump sum investment and another one is through SIP. A systematic Investment Plan is a considerable tool to invest in a staggered manner allowing an investor to invest small amounts periodically which can be weekly, monthly or quarterly. The Investor can start investing in a mutual fund through SIP with a minimum of ₹ 500 only. Some scheme also has a provision for a monthly SIP of Rs.100.
SIPs are designed to help you stay on the way and ride market ups and downs to help you create wealth. However, there are many more things to it. They are meant to help you stay on the way and ride through the ups and downs of the market over the long term. Once you can do that, then there are adequately higher chances of you earning a feasible fair rate of returns through equity investing.
Investors should acknowledge SIPs in investments for long durations to get the desired compounding effect for maximal wealth creation. This will also curtail your risk in investment. SIP accommodates the gain of Rupee Cost Averaging. Rupee cost averaging is a passage in which you invest a fixed amount of money at ordinary intervals. This, in turn, assures that you acquire more units of a particular mutual fund when prices are low and less when they are high. Thus, in the long-term, you receive more advantages from a bull as well as a bear run of the stock market.
No doubt, SIP is an ideal attractive wealth creation tool. And yet, many people continue to remain in dilemma on how and where to invest. In today’s scenario, it is suggested for all of us to at least invest 20% of our monthly income into SIPs. There’s no ambiguity that investing in SIPs for long-term corpus creation can help us meet our long-term objectives such as children’s education, retirement, desired home, world tour, and marriage. By providing you with a compounding effect on your investment, SIPs also enable you to create long-term wealth for you to lead a comfortable life.
Firstly, you would need to do specific more things than simply doing your SIP investing. One is that you will have to be disciplined and be at it and continue investing through the ups and downs of the market because generally what people do is selectively start and stop SIPs which becomes their drawback over the long term.
Secondly, you have to be capable to depute a prudent amount of money to create meaningful wealth. For instance, you come across investors who would be earning well over a lakh of rupees a month or even more, but they would be doing a SIP of say ₹ 5,000 per month. Now even if they remain disciplined through their investing journey and even if they end up earning a graceful rate of returns, probably it will not make an important difference to their financial well-being, given the extent of their investments in the context of their financial supervention. So it is important for you to be investing a prudent sum of money in the context of your financial situation to create meaningful wealth, wealth that makes a difference in your life.
Lastly, you should look at increasing your SIP amounts, along with an increase in your income. Usually what happens is that you start investing a specific sum of money in the market. But after a period of time, your income increases, and if your SIP investments don’t keep ambulate with it, then again you end up in the identical situation of Rs. 1 lakh income and Rs 5000 SIP amount, which is escapable. Once you take care of these things, you are all ready to create wealth.
Equity Mutual fund returns are market linked. It bears risk but in the long run, through the SIP investment pattern, this risk becomes computed and almost tractable. SIP made in good quality Large, Multi-cap funds and a smaller portion in Mid and Small caps can produce returns ranging from 12 to 15% p.a. But considering the ups and downs in the equity market, it is always cautious to be realistic and reasonable raturns of around 12%.
Factors to consider before you start your SIP’s :
- Set your goal first and set their time horizon.
- Isolate them into short-term and long-term goals.
- Choose Debt Mutual funds for Short term and Equity Mutual funds only when the time horizon of a goal is more than 7 years.
- Then map each SIP in a mutual fund with that specific goal.
- There is never a favorable time to start SIP. Don’t try to time the market and sit on the cash looking for the right opportunity to invest.
- Give proper time to each chosen SIP to witness both bull and bear phases of the share market.
- Don’t jump to the conclusion to change chosen SIP of the mutual fund every 3/6 months.
- Instead of concentrating only on the ability to generate high returns, focus on managing downside risk management of the selected SIP.
- And very necessarily never stop your SIP investment because of short-term fluctuations in the share market. Both bull and bear market cycles are important for the SIP to produce considerable returns in the long run.
- Patience and discipline in doing investment in SIP are very important for acquiring extensive benefits out of SIP investments.
- Equity Mutual fund SIP pays off well only in the long run.
SIP lets you live worry-free about the timing of the market. No investor can time the market, it is next to impossible. So just sitting on the cash and waiting for the correct time to invest is nothing but wasting your precious time. SIP helps the investor to be disciplined in investing regardless of the inclination of the market. With all these benefits SIP is now a favorite among investors.
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in
Also read : All about investing in Sovereign Green Bonds