There are multiple investment schemes out there to choose from, but one should discuss their financial goals with their financial advisor before investing. When you have a defined set of goals, know your risk appetite, and also know how many years you have in hand to achieve these goals, investing might become simpler. Goal based investing never fails as you wouldn’t want to back out by achieving your life’s goals which can be anything like buying your dream home or building a solid retirement corpus. There are some individuals who are not willing to take any risk with their finances. Such investors generally invest in conservative schemes that offer fixed interest rates. However, the interest rates have been falling over the years and conservative schemes like bank FDs are offering extremely low interest rates. It might be impossible to create long term wealth with such low returns. Also, there’s hardly any flexibility with conservative schemes which means you might not be able to liquidate your investments in case of an exigency.
On the other hand, if you are a young investor looking to give his / her investments an aggressive approach, you can consider investing in mutual funds. Mutual funds are a pool of professionally managed funds that offer active risk management. These funds invest across various money market instruments like equity, debt, corporate bonds, commercial papers, debentures, etc. for income generation. A mutual fund scheme might help investors target their life’s short term as well as long term financial goals. There are multiple ways to invest in mutual funds schemes. Investors can either make a one time lump sum investment or they can start a monthly SIP.
What is SIP?
Systematic Investment Plan or SIP is an easy and hassle free way to invest in mutual funds. It is far more convenient mode of investing as compared to lump sum investing. With lump sum investing, one has to invest the entire investment amount right at the beginning of the investment cycle. However, you end up exposing your entire finances to market’s volatile nature, especially if you are investing in equity schemes. On the other hand, with SIP all an investor has to do is complete all the mandatory pre-investment formalities like KYC documentation and linking your bank account to your mutual fund portfolio and they can start investing in mutual funds via SIP from the comfort of their home or office.
Continue your SIP investments even in volatile markets
If you want to build wealth over the long term, then you should never stop your SIP investments midway. Every month on a fixed date, a predetermined amount is debited from the investor’s savings account and electronically transferred to the fund. Even in volatile markets, one should not stop their SIP investment midway. When the markets are low, the NAV of the scheme is low. Since the SIP amount remains stagnant, more units are allotted when the markets are low. Similarly, when the markets are performing and all time high, the NAV of the mutual fund scheme is also high. Hence, lesser units are allotted. This adjustment of units depending on fluctuating markets is referred to as rupee cost averaging. Rupee cost averaging reduces the investment risk and also allots more units even in falling markets. However, this is only possible if you continue investing in mutual funds via SIP even when markets are underperforming.
A Systematic Investment Plan might be ideal for achieving life’s long term financial goals through disciplined and regular investing;however, investors are expected to talk to their financial advisor before investing.