Role of SIPs in Achieving Your Financial Goals

Role of SIPs in Achieving Your Financial Goals

By Akhil Chugh

Date July 16, 2023

You want to save for retirement. And for your child’s education. You also need to save on tax. Then there is this long-cherished dream of owning a luxury house in the poshest locality of your city. And your plan to upgrade to a bigger car. That’s quite a mix of long-term, medium-term, and short-term financial goals.

Just as individuals have different goals, there are mutual funds to help achieve these objectives. And SIP in different mutual funds aligned to your financial goals can play a crucial role in helping individuals achieve their financial goals.

Role of SIP

An investment must always be chosen keeping in mind the investor’s risk appetite, investment horizon and financial goal. Mutual funds are a smart way to start investing for someone who wants to get exposure to the equity market but doesn’t have much knowledge about the stock market. Mutual funds collect money from investors and invest this pool of money in various assets like equity, debt, government bonds, money market instruments. Mutual funds help balance risk and diversify an investor’s portfolio. Using a Systematic Investment Plan (SIP) to invest in mutual funds is a sensible approach to help you accomplish your goals.

Let’s find out the benefits of investing in mutual funds through SIP in detail. First, let us understand what SIP stands for and how it can help investors realize their dreams.

What is SIP?

In SIP, you invest a fixed amount of money in a mutual fund of your choice at regular intervals. When an investor chooses to invest through SIP, a fixed amount is debited from their account, depending upon the frequency chosen by the investor and transferred to the mutual fund scheme in which they’ve invested. To know what amount of monthly SIP you need to invest to achieve a certain money goal, use our SIP calculator.

SIP in mutual funds

How SIP can help you achieve your financial goals?

No matter what your dreams are, A great place to start is with a Systematic Investment Plan (SIP) that allows you to save a certain amount of money on a regular basis. Let’s look at some of its benefits:

1. Inculcates financial discipline:

SIPs promote disciplined investing by allowing you to invest a fixed amount at regular intervals, typically monthly. This systematic approach instills a habit of regular saving and investing, helping you stay committed to your financial goals over the long term. By automating your investments, SIPs reduce the temptation to time the market or make impulsive investment decisions.

The below example shows how the discipline of regular investing helps to create substantial wealth over a longer time period.

SIP to achieve your goal of dream home
2. Rupee Cost Averaging – Makes Timing the Market Irrelevant:

Knowing when the right time is to invest in the market can pose a big dilemma. It is hard to predict when the market will be at its peak or low point. Investing through SIP makes timing the market irrelevant. 

One of the most important advantages of SIP over lump sum investment is rupee cost averaging. When you invest a fixed amount every month, the number of Mutual Fund units you actually buy depends on their market price. Therefore, with the money you invest each month, you can buy fewer units when the market moves up and more units when the market moves down. This brings down and averages the price of purchase. This in the long run enhances your returns on investment substantially. 

Thus, rupee cost averaging helps an investor beat market fluctuations and makes his/her investment averse to market volatility.  

3. Power of compounding:

The power of compounding is often referred to as the eighth wonder of the world. And here, you must be thinking, what does this power of compounding actually mean? 

Under the power of compounding, you not only get returns on the money which has been invested but also on the gains. And this way you are able to create a great amount of wealth over a period of time. 

When you invest regularly through SIPs, your returns get reinvested. Over time, this result in a snowball-effect, that may increase your potential returns manifold. An ideal way to maximise this gain is to invest for an extended period. This also means you may benefit by investing as early as possible.

Even a ten-year head-start can have a major impact on your returns. Here’s an example to illustrate the point.

This is the magic of compounding.

4. Effective for goal planning:

SIPs are effective for goal planning whether it is long-term or short-term financial goals. Typically, investors invest in equity markets to make quick bucks. But the equity market is a great investment option to invest in for long-term financial goals such as buying a house, buying a dream car etc.  You can effectively achieve your financial goals by opting for SIPs in mutual funds as you will be disciplined and won’t be budged by market volatility.

Why SIP is better than EMI
5. Convenience:

SIPs can be a handy way to invest. You, like other investors, may not have the time to do comprehensive market research and analysis in order to alter or balance your portfolio. So, once you’ve chosen a solid fund, you can give the bank standing instructions and let the SIP handle your monthly instalments.

You can also download the Net Brokers mutual fund app – a smart investment app to kickstart your investment journey via SIPs.

Investing in SIP is easy. You don’t need to take daily market updates to invest. Start your SIP once and enjoy stress-free returns.

Key Takeaways from Net Brokers:

  • SIPs are a good way to begin investing in mutual funds. This not only inculcates the discipline of saving regularly but also gives the investment a chance to grow in the long run.
  • Start investing in mutual funds for your financial goals as early as possible to reap the advantages of the power of compounding and create the desired corpus required to fulfill all your dreams!
  • There is no ‘good’ or ‘best’ time to invest through a SIP. The best thing about SIP investments is that you don’t have to time the market or wait for the perfect opportunity to invest.
  • Investors should opt for SIP Top-ups to match their mutual fund investments with their rising income to reach their goals faster.

When combined with smart fund selection, SIPs help one’s money compound over the long term, ensure a disciplined approach and help in building long-term wealth. Before setting up an SIP, it is important to calculate the amount you would need to meet your financial goals and then back-calculate the amount you would need to invest in your SIP accordingly. This makes sure that your long term financial goals are met. Contact Net Brokets today and start your long-term investment journey toward financial freedom and success! 

At Net Brokers, we can provide you with expert assistance for your mutual fund investments. Visit our website and get in touch with our experts who can assess your financial objectives and recommend an investment portfolio that will help achieve them.

Download our mutual fund app & start investing for your long-term financial goals.     

Happy SIPs!