Investing in mutual funds via SIPs seems like an easy and convenient way to achieve your goals, albeit you follow the right path.
It’s a known fact that SIP investments work exceedingly well if you are investing to achieve certain financial goals as SIP operates on the principle of investing regularly, which allows you to benefit from rupee-cost averaging and compounding of wealth. This is perhaps the most convenient way to generate higher returns over a period of time as the small consistent investments that you make sums up to a big amount at a later stage, at maturity. But whether the regular investments that you make through SIPs are potent enough to help you achieve your financial goals? Let’s find out.
The foremost step that you take before you start investing is to choose the schemes that you want to invest in wisely. Secondly, calculate the right amount that needs to be invested to achieve your short and long term goals, and lastly, follow a disciplined approach and consistently invest at regular intervals, including any surplus amounts that you have at your disposal to help reach your goals faster.
The scheme that you choose needs to be effective enough to help you reach your goals, as they play an important role in building up your portfolio and help you achieve your desired goals. You need to choose the category or the style of mutual funds to invest for best results. Zeroing down the best funds carefully can help avoid undue risks that may lead you to deviate from your target. Evaluating the consistency of the scheme’s performance across varied market conditions and then investing in the right one makes sense.
It is also extremely important to invest the right amount, as any deviations can lead to failure in achieving the goals. For example, if you invest Rs 5000 every month via SIP with a goal to achieve Rs 5 lakh in five years, with an expected annual return of 12%, the corpus that is accumulated after that period would stand to be at Rs. 4.1 lakh, setting you back by Rs. 90,000. To get the desired amount of Rs. 5 lakh, the SIP installment should come around Rs. 6,100. This is why you should invest the right amount to reach your financial goal.
Furthermore, even if you invest a lesser amount, you may opt for the step-up SIP feature of mutual funds to increase your contribution by a fixed percentage or amount every year. This will help in accumulating a bigger corpus and beat inflation.
Lastly, following a disciplined approach helps when the markets are inconsistent, as many investors withdraw their funds under such panicky situations. Never getting bothered by volatile market conditions, and keeping yourself invested, helps achieve your goals without any setbacks.
Now, the question arises, how do you calculate the exact amount that is needed to achieve a specific goal. If you are not able to figure it out manually, there is an SIP Investment Calculator which helps investors calculate the right investment amount. The SIP Calculator is an ideal tool when it comes to figuring out the right SIP amount that you should put in every month.
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