Attain Financial Stability Through SIP Investment

If you are unhappy with your monthly income, you will definitely have looked for some investment options. Although it is true that there are plenty of financial products to choose from, those who are good at financial planning are able to make a better investment decision. That’s because financial planning and investment planning usually go hand in hand. Financial planning encourages investors to determine their short term and long term goals. Having a defined set of goals might also help investors understand how much capital they need in hand for an initial investment. There are multiple schemes available in the market but if you know your goals, narrowing down to a relevant scheme might become easier. We are emotionally attached to our financial goals and it is obvious our hopes and aspirations depend on our investments.

Diversification of risk is essential for anyone building a financial portfolio. That’s because if one investment underperforms it is less likely that all the other investments will underperform at the same time in tandem. Risk appetite is something every investor should take into consideration before putting their hard earned money is any scheme. There are few investors who do not wish to put their money at risk. For such individuals, conservative schemes offering fixed interest rates is probably the only investment option.

However, if you do not wish to settle with such schemes and are willing to take some risk by investing in market linked schemes, you might consider investing in mutual funds. Mutual funds are considered to carry a diversified portfolio. They also offer investors an opportunity to invest in multiple markets through one single investment. Mutual funds also offer active risk management which is why even those who lack in depth financial literacy can still consider investments in these funds.

What fund houses do is that they collect money from those individuals who share a common investment objective and invest this pool of funds across the Indian and foreign economy. There are fund managers who actively buy/sell securities through an investment strategy to help the mutual fund scheme achieve its investment objective. Whether a mutual fund will invest in equity, debt or other asset classes will totally depend on the nature of the scheme and the risk profile that it carries.

For example, ELSS is a tax saving scheme that invests predominantly in equity and equity related instruments. A hybrid fund invests both in equity and debt. A liquid fund invests majorly in debt instruments and fixed income securities.

What is a Systematic Investment Plan?

SIP has become so synonymous with mutual funds these days that several individuals confuse them to be one and the same. A Systematic Investment Plan or SIP, is one of the two ways to invest in mutual funds. Investors have two options while making an investment in mutual funds – they can make a one time lump sum investment or they can start a SIP in that particular mutual fund. SIP allows investors to invest small amounts in mutual funds at regular intervals. This systematic way of investing might inculcate the discipline of regular investing in an individual. Investors have to follow one time mandate procedure with their bank to start a SIP. In a mutual fund SIP, every month on a fixed date a predetermined amount is debited from the investor’s savings account and electronically transferred to the mutual fund.

How can SIP help attain financial stability?

A systematic investment plan can be opted by even those who do not have large capital in hand to begin mutual fund investing. Mutual funds offer the minimum SIP investment amount that is mentioned in the offer document. This allows investors to invest at regular intervals without facing a cash crunch. When you start a mutual fund SIP, you are slowly but steadily building a road to wealth creation and financial stability. When you invest regularly in mutual funds through SIP for the long run, your small investment amounts can turn into a large corpus, thanks to the power of compounding. Investment is a long journey. One needs to be consistent and remain committed to their investments without prematurely withdrawing. SIP might help investors remind them of their goals and motivate them to continue investing till the investment objective is achieved. Due to rupee cost averaging, the fixed SIP amounts are regulated depending on the NAV of the mutual fund. When the NAV is low, more units are allotted to investors. Similarly, when the NAV of a mutual fund is high investors are allotted lesser units. Rupee cost averaging in SIP may lower the investment cost of an individual over the long term.

Investing in mutual funds may offer some capital appreciation. However, investors should bear in mind that mutual fund investments are subject to market risks and returns from such investments are never guaranteed.

Mutual fund investments are subject to market risks, read scheme related information carefully