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SIP your way to these three financial goals

Investing in mutual funds can be tricky. Once you’ve decided between debt and equity, you have to choose between a systematic investment plan (SIP) or lump sum investment. While lump sum purchase of mutual funds seems attractive if you have a passion for tracking indices and funds, a SIP can earn more over time.

With a SIP, you invest a fixed amount regularly so it accumulates over a period of time. If you have a long-term goal, investing in an equity SIP will help your money compound over the years.

Here’s why a SIP can help you achieve three of the most important life goals:

You can take advantage of time until your retirement

Building a retirement corpus requires investment discipline. A SIP in an equity mutual fund held for several years will help you build a tax-free, inflation-adjusted portfolio.

For most people, retirement will be the goal that takes the longest time to reach. Yet it’s the one we delay most often.

A SIP helps you stick to the “save first, spend later” mantra, since you invest the same amount at regular intervals, often through an automated withdrawal from your bank account. This reduces the pressure to invest your remaining disposable income after spending your salary on necessities.

If you start planning early enough, you’ll have a few decades to watch your investments grow. Because you have a long time until retirement, your money has time to rebound from any downturns.

You’ll need time and compounding to fund your child’s education

The countdown to saving for your child’s future begins from the moment you learn you’re expecting. You will have at least 18 years to grow a corpus, so investing through an equity SIP gives you the advantage of growing a small fortune over a lengthy investment horizon.

With time on your side, not only does an equity SIP give you better returns, it also gives you the option to link the SIP to your child’s education milestones. You also get the twin advantage of averaging costs and compounding returns.

No lender will fund your 100% of your dream home

Owning a house is not only an emotional investment but also a huge financial responsibility, especially when it comes to managing a home loan. However, investing in mutual funds through an equity SIP could ease the pressure of repaying your home loan by helping build a substantial corpus for a down payment.

If buying a home is a short-term goal for you, you can invest in debt mutual funds through a SIP. This will lock away your money in low-risk instruments rather than high-risk equities, but if you have a limited time frame it’s a good saving option.

If you start saving for a home in your late 20s or early 30s, you could save more than what’s required for a down payment, meaning you’ll need to borrow less money from the bank. This will help you pay your mortgage off quickly and reduce your EMIs.

The main advantage of a SIP, aside from its regularity, is that you’re in the market whether it’s up or down. By staggering your investments over a period of time, you mitigate the risk of losing a large amount of money during a downturn and improve your chances of making a strong recovery during an upswing.

 

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