Looking at the current market situations, you might contemplate about investing your money in securities as the markets are quite volatile due to slow economic conditions. The impact of the deadly disease has aggravated in most sectors owing to the extended lockdown in the country.
However, to create wealth in the long run, this can serve to be the best time to invest in equity markets. You must be acquainted with the adage saying – “little drops of water make up the mighty ocean’. This concept is amazingly accurate holds true for investments in SIP as well.
What is SIP?
Systematic Investment Plan is a tool offered by mutual fund houses to invest a fixed amount periodically in a mutual fund scheme at fixed intervals. The periodicity of the intervals can be daily, weekly, fortnightly, monthly, semi-annually, or annually. You can invest in SIP with the amount being as low as Rs100.
How to build your mutual fund portfolio through SIP?
SIPs work similarly to bank recurring deposits except for the fact that they generate relatively higher risk-adjusted returns as compared to recurring deposits in the long run. Let’s see how SIPs help you generate wealth in the long term:
1. Diversification is the key
SIP investments in mutual funds is not restricted to just equity markets, but also debt funds, hybrid funds, or even gold funds, or any other securities. It’s important to invest in a basket of different types of mutual funds with different underlying assets to generate superior returns. Doing so will ensure decent returns when the markets are experiencing the spurt phase and even ensure minimum risks when the markets are down.
2. Align your SIP investments to your financial goals
Every investor has a different set of financial needs goals at each age group. Hence, it’s better to align your mutual fund investments according to your investment strategy based on short-term and long-term financial goals.
3. Focus on long term
Your SIP investments grow the best when invested for a long time. This is because of the power of compounding. Under the compounding effect, your returns on your investments work to generate returns on their own further. Some people also call this concept the eighth wonder of the world as they have the potential to change the returns on your mutual fund investments drastically. So go low, but start investing early. The earlier you start, the more time you give to your investments to grow and the compounding effect to show its magic.
If you are unsure about the returns on your investments, you can use a mutual funds SIP calculator to help you portray the true value of your investments. An SIP calculator can also be used to determine the periodic investment amount needed to generate a particular corpus. Happy investing!