Most people don’t plan to fail they fail to plan ⁓ John L Beckley.
The importance of financial planning is not unknown to anyone but even after that, certain investors are apprehensive or not confident about starting their journey in mutual fund investing. Though it entails a certain degree of risk, based on the kind of mutual fund schemes one chooses, it also gives compounding returns, when the investment is undertaken over a long period of time. When one is looking to set foot in this area, SIP mutual fund seems to be the most-friendly, easy and accessible option for most investors. Known as SIP, this is a way to make an entry in mutual funds with an amount as small as Rs 500. Doesn’t that sound feasible? If yes, read on for more information on SIP mutual fund investment.
SIP allows investors to invest a pre-determined amount at frequencies such as monthly, daily, yearly or quarterly, in mutual fund schemes chosen by the investor. As the monthly SIP is as low as Rs. 500, even if the investor is a student or someone getting pocket money can also go for it. There is no upper limit in case of a SIP as it depends on the individual investor in question. By taking the SIP method of investments, the investor can invest in a disciplined manner without having to worry about the high lows of the market and stand to benefit in the long-term due to average unit price costing and the power of compounding.
One can invest in SIP mutual fund to reach their desired financial goals, let us analyse this with respect to popular individual goals:-
SIP & Child education – With higher education costs at an all-time rise, parents needs to plan way in advance on how to finance their child’s education. The parent can invest in SIP to make sure the child’s education goal is met. Suppose, Mr. Vikram wants Rs 30 Lakhs after 15 years for this purpose. He has no idea how much to save but only knows that he can get 12% return from mutual funds and that the inflation can be around 5%. After entering this details in a SIP return calculator, he finds that he has to start monthly SIP Investment of Rs. 12,484 for 15 years to meet this goal.
SIP & Retirement Planning – Retirement planning is a lifelong process where individuals need to understand various facets such as time horizon, estimated spending and taxes post retirement, in order to know what the amount they need to start saving from now onward. For example, let us assume you want 1 Crore corpus post retirement at today’s value when you retire after 30 years of work life. If you assume 5% inflation and 12% returns, then you would have to save Rs 4.32 Crores (inflation adjusted) and for that you would have to invest in SIP, monthly Rs. 12,360, in order to get the desired retirement corpus. A SIP calculator helps in this.
SIP & Tax savings – One can lose a significant part of their income in paying taxes. In order to avoid this, one can use SIP Mutual fund route to invest in ELSS mutual funds to get tax benefit on investments of up to Rs 1.50 Lakhs done in a financial year.
SIP is a powerful way for mutual fund investment. Using a SIP return calculator, you can plan your SIPs better and can also meet various financial goals.