To achieve life’s long term goals more and more investors are switching from conservative schemes to mutual funds. Mutual funds are a pool of professionally managed funds that may not offer guaranteed returns but are known for the high risk returns tradeoff. Mutual funds offer active risk management by investing in a diversified portfolio of securities for income generation. Asset Management Companies owning mutual funds collect money from those who wish to mutually invest in a particular scheme. They then collect money such investors and invest the capital raised to achieve a common investment objective. The investment objective and asset allocation strategies of schemes may differ. For example, small cap funds are highly volatile but also hold the potential to offer maximum returns. On the other hand, a liquid fund may not offer higher returns, but it aims to generates stable returns and offers high liquidity for investors.
Whether you are investing in a debt scheme or an equity oriented scheme, you can always start a monthly SIP to ensure that you continue investing without losing consistency. Systematic Investment Plans have dramatically helped investors in the past with some earning commendable capital gains.
What is Systematic Investment Plan?
There are multiple ways to invest in mutual fund schemes. Investors can either make a onetime lumpsum investment or opt for organized mutual fund investing through SIP. Several investors often wonder when the right time would be to enter markets. With SIP any time is a good time to invest in mutual funds as long as you have a long term investment horizon. One can easily start a monthly SIP in a mutual fund scheme of their choice. All an investor has to do is become KYC compliant and complete all the pre-investment formalities with the AMC as well as their bank. Investors can even decide the monthly SIP sum which they are comfortable investing at periodic intervals. If you instruct your bank to allow auto debit, every month on a fixed date, the predetermined SIP sum is debited from the investor’s savings account and units are allotted to their mutual fund portfolio. Investors receive units every month in quantum with the SIP sum and depending on the fund’s existing NAV (net asset value).
Can SIPs make you wealthy?
Long term wealth creation plans require investors to continue investing in a systematic and disciplined manner. Starting a monthly SIP with auto debit option will ensure that you save and invest regularly. SIP might probably the smartest and safest way to inculcate the discipline of regular investing. It is also the best way to create long term wealth by earning some interest from the amount invested.
Here’s a simple example that aims to simplify how SIPs can make you wealthy –
If you invested Rs. 10,000 every month for 10 years in a mutual fund scheme and expect the scheme to deliver and average of 15% returns, the total amount which you invested during the investment horizon would be Rs. 12 lakhs. However, the total value of your investment will be Rs. 27.2 lakhs.
This example only explains that long term investing in mutual funds via SIP can help your investment amount multiply and even offer twice as much returns. Also, if you increase your monthly SIP sum by 10% every year, it may only add up to your wealth.
Unable to believe this? You can refer to SIP calculator a simple tool where all you have to input is the SIP sum you will be investing, for how many years you will be investing and what interest rate you expect the scheme to offer. The calculator does the rest of the job, giving investors a clear perspective on the wealth they can earn through SIP.
