November 26, 2022

How mutual fund SIP helps meet financial goals?

The process of converting your savings to investments can be a difficult transition. However, one of the best options in the market for making this well needed transition can be with the help of a SIP investment in mutual funds. It is a disciplined, viable and hassle free option for mutual fund investors looking to expand their savings into equities through mutual fund investment

Since it is an excellent investment option for the public, let us understand more about the SIP mutual fund concept and its facets.

A SIP or systematic investment plan can help you to invest a fixed desired amount at regular intervals in mutual fund schemes, which in turn invest in the equity and debt markets. It helps you build long term wealth as your investment compounds over time and you also benefit by rupee cost averaging as you accumulate units at different mutual fund NAV. The power of compounding works by growing your wealth exponentially as It add backs the profits back to the original investment amount and thereafter reinvest the entire amount to further generate profits. 

Due to this reason, an investor – new or existing, invests and remains invested with a basic objective – to attain or inch closer to their respective financial goals. Well, these goals can be of different kinds, based on the lifestyle, age, status, and current savings of the investor. Ithe journey of investing in mutual funds through SIP takes time and patience but in the end of what might seem like a long road, it can be worth it when you would be able to use the corpus for a long awaited goal completion or for a financial exigency.

Let us understand how SIP mutual fund helps investors in completing specific goals:-

SIP & Child education – With higher education costs rising rapidly, parents need to plan way in advance on how to give wings to their child’s dreams. In this case, a long term SIP investment (ideally in equity mutual funds) can surely help. Suppose, Mr. Aryan wants to have Rs 20 Lakhs after 10 years for funding his child’s education plan, then assuming no inflation and say a 12% rate of return, he needs to make a monthly SIP Investment of Rs 8,694 from today, to reach his desired goal.  This calculation can be easily made using a SIP Calculator.

SIP & Retirement Planning – Retirement planning is ideally a lifelong process which includes strategizing, allocating, saving and investing, to finally reap the benefits when you are no longer working. One needs to understand various facets to this such as time horizon, estimated spending post retirement, post-tax returns, etc., in order to know what the amount they are aiming to save is. SIP can help as you can invest a small amount for long term to meet this goal.

SIP & Tax savings One can lose a significant part of their income in paying taxes, which in turn means that they would be losing out on savings. In order to avoid this, one can invest through ELSS SIP Mutual fund which saves taxes and gives high returns. Investments of up to 1.50 Lac in a FY in ELSS mutual funds is eligible for tax deduction under section 80C of the Income Tax Act 1961. 

One can invest in ELSS mutual fund through SIP or through lumpsum method.

The concept of SIP investment is simple when one practices it and trusts the process. It can help one reap benefits and reach their much desired goals

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