Starting early and saving regularly for a longer period of time in this idea will fetch you the benefit of compounding returns. Read on to know about this great way of making money.
If there’s one activity that we all tend to postpone and defer, it’s financial planning. By not planning, you deprive yourself of a stress-free future. Not all financial goals are to be approached the same way. Depending on your circumstances, some goals might take longer to reach than others.
- First, you may need to have an emergency fund at any point in time
- Short-term goals are your immediate expenses. They might include saving for your vacation, wedding, repaying an Education Loan, or for the purchase of luxury furniture for your home.
- Long-term goals are usually your bigger costs. These goals might take several years or even decades to reach. For example, paying off your home loan, starting a business, saving for your child’s education and your retirement.
Mutual Funds can help achieve these financial goals whether one is looking for long-term wealth creation or to park funds for a short amount of time. Equity Mutual Funds in India have generated close to 12%-15% annualised return over the past 10 years. That’s about 7%-8% above inflation. So, what is the ideal way to take exposure to equities?
Those who have the skills to invest directly can build their own portfolio. But for beginners it generally means investing in equity oriented mutual funds. Mutual funds are ideal to help you plan your life goals. They offer different kinds of investment options for planning one’s investments, especially when you are clear about your goals.
Investing through SIP
Systematic Investment Plan (SIP) facilitates wealth creation in a disciplined manner. It is a process of investing in mutual funds, where investors invest an amount regularly for a period of time. You can start SIPs for any of your financial goals and benefit from staying invested for the long term.
Investing through SIP inculcates a habit of investing as you commit a fixed amount and invest it systematically every month. Starting a SIP in an equity mutual fund allows you to take advantage of investing in equities and diversify your risk across companies, sectors and markets etc.
You can actually set a target amount based on your goal and achieve the same over a period of time by investing a small amount every month. You can also decide the amount of SIP based on your financial goal.
This example may help you understand the concept of money making via SIP better. If you start a SIP with monthly investment of Rs. 2,000, you would get Rs. 1.6 lakhs in 5 years; Rs. 4.6 lakhs in 10 years; Rs. 10.1 lakhs in 15 years and Rs. 38 lakhs in 25 years (assuming a 12% annual return).
By starting early and saving regularly for a longer period of time, you get the benefit of compounding returns.