For those who haven’t started their investing journey yet, SIP or Systematic Investment Plan in mutual funds is the best way to start.
SIP allows you to start with as little as Rs 500 per month. Gradually as your confidence improves, you can start investing more.
SIP is not an investment plan in itself. It is just a tool – like a recurring deposit in a bank. It allows you to invest a specified amount every month into the fund of your choice. It could be a equity mutual fund or a hybrid mutual fund.
SIP allows you to average out your cost of investment across market cycles because you are investing a fixed amount regularly.
It doesn’t really make much sense to do a SIP in a debt mutual fund although you can do it if you want to build up a contingency fund slowly.
Some of the more seasoned investors can use the same concept for direct equity. If you have a few chosen stocks in mind, you could invest a fixed amount every month in those stocks to average out the cost.
SIPs work best over the long term – which means a period of 10-15 years.
Look at the calculation above. If you invest in an SIP of Rs 500 every month for 15 years, you can accumulate 3.4 lacs.
Similarly, if you invest Rs 5000 every month for 15 years, you can accumulate 33.8 lakhs
Such regular and planned investments are great for goal oriented financial planning.
For instance, your goals may be :
- Purchase of house
- Education of children
- Starting a business
- Repayment of loan
- Purchase of vehicle
- Vacation abroad
- Retirement fund
Depending on the amount required, you can start a SIP for each of the above goals.
In time, you will be able to achieve your financial goals, thus relieving you of a lot of stress and insecurity.
If you face any problems implementing this plan, or if you have any doubts, shoot us an email.
We will be glad to help you out.
Let us make your money work for you.