Mutual funds are an excellent place to begin your investment adventure. You can invest in a lump sum or set up a Systematic Investment Plan (SIP) to regularly invest a small amount of money. SIPs are the best alternative for novices or first-time investors because they allow you to generate significant returns while reducing your investment risk. Depending on your income and financial goals, you can invest a set amount every month, week, or quarter for a set period of time.
First-time investors are frequently hesitant to put a substantial sum of money in mutual funds. However, SIPs do not require a high investment amount. SIPs allow you to invest in mutual funds with as little as Rs 500.
Why do you want to start SIPs?
Typically, investors begin investing because they need to save money on taxes or have a surplus in their bank accounts. Most investments are undertaken with no specific objective in mind and are thus redeemed as and when cash is required. Deciding on a goal is the most significant component.
It’s crucial to understand why you want to start a SIP – is it for the corpus you want for retirement, for your children’s further education, for the bungalow you want to build when you’re 50, or for the vast automobile you wish to buy in 5 years or so? It would help if you began the SIP once you clearly understood your aim.
We all realize that our current or potential future income will not be sufficient to achieve all of our objectives. As a result, accumulating investments over a lengthy period of time via a SIP route fueled by compounding may yield the required benefits. As a result, if you have a list of financial goals or merely a goal, you should consider starting a SIP.
5 Tips you need to know about SIP
This is a critical point. If you want to invest in mutual funds to develop a retirement fund, you need to get started as soon as possible.
The sooner you begin, the more time your investments have to compound. Compounding is also fantastic. You have no idea what it can accomplish for your financial growth.
Compounding is the process of reinvesting the profits from a previous investment. This return is added to the principal, and the investment then earns additional returns on the increased capital. This highly strong notion can turn even little money into huge sums of money over time.
Identify Your Investment Goals
To begin your investment, you must have a short-term and long-term aim. It’s critical to identify the aim you want to achieve with your investment before starting a SIP. This simple step will aid you in determining the amount you wish to invest and the duration of your goal corpus.
Keep your portfolio optimized
The funds you choose will not always be the best funds. Make sure you’re investing in the greatest mutual funds at all times.
For example, let’s say you choose the top mutual funds from the list above. Let’s fast forward until 2023. Do you believe the same funds will be the greatest then as well? Why should you keep investing in them if that is not the case?
Portfolio optimization is a difficult task to accomplish. Your portfolio must be actively managed. Unless you have infinite time on your hands, please leave it to the machines.
One of the golden laws of investment is to account for inflation when purchasing. You must consider current and potential inflation while selecting a SIP. You may be investing now, but your future objectives may alter, necessitating a larger sum of money to meet your demands.
People frequently lose money despite several investments because they ignore inflation, which diminishes their returns on investment. Setting a corpus aim for your financial goals while considering projected inflation over the investing period and determining the SIP amount accordingly is recommended.
Now that you have identified your financial goals and the current and future costs of achieving them, you can calculate your SIP amount, choose a fund that suits your risk appetite, and begin your wealth-building journey. Remember that each goal is a separate trip, and it’s important not to mix them. An annual review of your future plans and returns is a good idea, and a financial counselor’s advice is always helpful.