Can SIP Help You Achieve Your Retirement Goals?

Retirement is that phase of life when people choose to completely withdraw from their profession. But before taking this decision, people generally make sure to analyse their financial situation as once retired, they would not be earning a regular monthly inflow of income. To ensure that enough money is accumulated before you reach 60, you could opt for retirement planning. In simple words, retirement planning is the act of planning for one’s life after retirement. To accumulate enough wealth for the future, it is advisable for one to start planning very early. Early, in this case, means just after entering the job market. One of the ways to generate wealth is by investing.

Investing involves the act of allocating funds into an investment tool that will enable you to invest your money in the market. One of the common investment tools that are available in the market today is mutual funds and their different variants. While investing in a mutual fund, there are two investment methods available to you namely, lumpsum and systematic investment plan (SIP). Under lump-sum investment, the payment is made at one time. Conversely, under SIP, a certain sum is debited from your account at a stipulated time. While you could opt for a lumpsum investment if you have the money, in case you don’t, you could go ahead with SIP instead of not investing at all. Plus, SIPs will help you in long-term wealth accumulation without burning a hole in your wallet.

There are ways in which SIP can help you achieve your retirement goals.

• They are easy on the wallet:

One of the major benefits of a SIP is that it facilitates investments in small amounts which are debited from your bank account at regular intervals. This reduces the stress of investing in lumpsum while you endeavor to address your financial goals.

• They are flexible:

SIPs are known for offering a lot of flexibility. It means that if you start realizing extra disposable income each month, you can opt for a fresh SIP that will help you grow your corpus further. Apart from that, SIPs also offer flexibility by enabling you to modify things like the amount, tenure, and even the scheme, anytime you want. And in case you want to close your SIP, all you need to do is place a request with the distributor or the AMC. However, please remember that sometimes, exit load charges may be levied on investments that are less than one year old.

• You can enjoy the benefits of rupee cost averaging:

As systematic investment plans are market-linked investment instruments, they can get affected by market highs and lows. However, thanks to rupee cost averaging, you can follow the fundamental principle of investing i.e., buying low and selling high. Therefore, as per the concept of rupee-cost averaging, when the market is low, you are supposed to sell units and purchase fresh ones when the market rises. This way, the average cost of investing reduces, and the income generated may rise. This inculcates discipline since it compels you to commit cash when the market is going through a rough phase and other investors around you are exiting the market.

• You don’t need to time the market:

Timing the market might be taxing especially when you are investing for long-term goals. While investing in mutual funds, what matters is “time in the market” and not “timing the market”. SIPs facilitate absorbing market shocks and the volatility in the journey of wealth creation, thanks to the feature of rupee-cost averaging. With rupee cost averaging, you will be allotted a smaller number of units when the market is high and vice-versa. This helps in balancing out your portfolio. Simply remaining invested for the long term will give you desired results.

• They are effective for achieving long-term goals:

You may be investing with a variety of financial goals in mind. But SIPs are particularly effective for goals with a longer time horizon, like your child’s future needs or building a retirement corpus. The earlier you start a SIP with a commensurate time horizon, the larger the corpus you can build in the future.

• One can enjoy the benefits of compounding:

One of the best things about SIPs for long-term goals is the power of compounding, i.e., it is a feature that will help your money grow at a substantial rate. This is mainly because the income generated through the scheme gets reinvested. This way, the longer you remain invested, the more substantial returns you can earn.

By signing up for a systematic investment plan, you might achieve your long-term financial goals. However, before opting for a SIP, please identify the objective behind your investment.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.