with a specific and regular systematic investment plan (SIP), you can easily earn crores over a long period of time. we all think of saving and generating wealth for the future but most of us are confused about how to reach that goal. experts suggest that if you make a specific systematic investment plan and invest regularly in the equity market through mutual funds, you can generate a strong corpus in the long term.
for example, if you invest ₹20,000 through a monthly systematic investment plan for over 15 years, you can generate over ₹1 crore, if the estimated rate of return is 12 percent. however, the investors should note that returns on investments through SIP are subject to market risks and not guaranteed. hence, financial experts suggest that your mutual fund SIP investment tenure should always be more than 5 years.
how does SIP help in creating wealth?
systematic investment plans are very effective in wealth creation and hence over the years, it has emerged as a popular investment tool for a majority of investors. the power of compounding works hugely in favor of systematic investment plans. with the power of compounding, investors can generate a strong corpus over time by investing in SIP schemes.
The power of compounding applies in SIP when an investor reinvests his/her earnings and earns further interests in due course of time. therefore, it helps investors generate wealth over time even with a limited sum of money.
what are the key benefits of a systematic investment plan?
with the help of a systematic investment plan, you can invest a fixed sum of money every month into the fund of your choice. SIPs help in inculcating a regular investment habit that helps in building a strong corpus in the future. here are some of the key features and benefits of systematic investment plans that help generate wealth over time:
#1. requires small principal investment
one of the key features of a systematic investment plan is that you can start investing with a small principal investment amount. those who have just started earning or those with limited cash at hand can start investing through SIPs with as low as ₹500 per month and reap the benefits of investing in mutual funds.
#2. freedom from market timing
as the systematic investment plan requires investors to invest at regular intervals, it helps to inculcate a disciplined approach towards investment and overall finances. as the principal amount is invested at regular intervals, it further allows investors freedom from timing the market before every investment. it helps investors catch every investment opportunity that would help them generate wealth over time.
#3. cost averaging
everyone knows that a stock market is a volatile place. it does not matter whether you are an expert or a beginner, no one can predict the rise and fall of the stock market. however, when you invest through SIP mode, you can make the most of the situation even when the market is down. when the net asset value of a mutual fund is falling, you can buy more units in the same amount which ultimately gives benefit during redemption. when the market is high and you have reached a satisfactory level of returns, you can choose to sell your mutual fund units at a higher price and make profits. hence, over a period of time, you would be able to decrease your average cost of investment and increase your scope of wealth generation.
#4. better return on investment
since the rise and fall of market situations do not guide SIP investments, you can get the best possible in different market situations. also, the compounding power of SIP further helps to generate risk-adjusted returns over a period of time. hence, SIPs turn out to be the best investment tool to generate wealth.
how to make the most of investing through SIP?
when it comes to investing through SIPs, there are certain rules which can help you achieve your goals easily. check them out below:
how to calculate and plan your SIPs?
now that you know how a systematic investment plan can help you generate a strong corpus over a period of time, the next step is to plan your monthly investment amount. first, find out what your goal is and how much you can invest monthly without disturbing your other expenditures. the next step is to find the mutual fund as per your SIP returns expectation and risk appetite. note that the mutual fund returns are subject to market conditions, hence, you should compare and check the past performance of the fund before investing in mutual funds.
you can use the CRED SIP calculator to plan your mutual fund investment. check out the steps below:
use the CRED SIP calculator now