Do you have long-term investment goals such as retirement planning or building an education corpus for your child? If yes, then Systematic Investment Plans or SIPs in mutual funds can help you meet these goals through disciplined and affordable investing. Read more to find out how.
1. Power of the compounding effect
The primary way SIP for long term goals is an ideal choice is because of the power of the compounding effect, which makes your money grow at an incredibly fast rate. This is mainly because the interest accrued gets reinvested into the scheme, so you earn interest not just on the money you invest but also on the accrued interest of the previous term. This way, the longer you remain invested, the more substantial returns you can earn.
2. Rupee cost averaging
Since SIPs are market-linked investment instruments, they get affected by market highs and lows, but because of rupee cost averaging, you can follow the fundamental principle of investing, which is to ‘buy low’ and ‘sell high.’ So, when the market is low, you sell units and purchase fresh ones when the market rises. This way, the average cost of investing reduces and returns rise.
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3. High flexibility
SIPs offer a lot of flexibility in the sense that if you start realizing extra disposable income each month, you can start a fresh SIP to grow your corpus further. Other than this, SIPs also offer flexibility by enabling you to modify the amount, tenure, even the scheme anytime you want. And if want to close your SIP, all you need to do is place a request with the distributor or the AMC. However, exit load charges may be levied on investments of less than one year.
4. No timing the market required
Timing the market to decide whether investing in SIP or selling off units is the right move can be taxing, especially when you’re investing long-term. Thankfully, with mutual funds SIPs, you need not plan your investments based on market ups and downs. Due to rupee cost averaging, you will be appointed less number of units when the market is high and vice-versa, thereby balancing out your portfolio. Simply remaining invested for the long term will give you desired results.
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So you see; by investing an affordable sum systematically every month, you can achieve your long-term financial goals easily. To help you make the most of your long-term investments, use an online SIP calculator that will give you quick and accurate results on the returns you are likely to receive. Another tool that will help you make an informed SIP selection is Tata Capital’s Moneyfy app. Browse through different fund categories and choose the best SIP to invest for long-term based on your unique investment requirements.