SIP: A Unique Investment Tool for Building Wealth

If you are wondering how to grow you existing wealth, financial planning should be your primary focus. It is impossible to multiply your existing wealth by letting it sit alone in the bank. When you know your short term and long term financial goals, you might be able to come up with an investment plan that is more apt for your income needs. Those who are risk averse, such individuals usually have a tough time finding the right scheme. With falling interest rates, one can hardly expect conservative schemes to help them achieve their life’s long term financial goals.

If you are a young individual with an appetite for risk who is seeking long term capital appreciation by investing in a market linked scheme and keen on adding an aggressive touch to their investment strategy, you can consider investing in mutual funds. A mutual fund is an investment vehicle for pooling from investors and collectively investing the capital raised to achieve a common investment objective. Mutual fund managers must buy / sell securities in accordance with the asset allocation strategy and investment strategy to help the scheme outperform its underlying benchmark. The performance of a mutual fund scheme depends on the performance of its underlying assets and all the sectors and industries in which it invests.

There are multiple ways to invest in mutual funds – One can either make a lump sum investment or they can opt for a monthly SIP. A Systematic Investment Plan or SIP is an investment process which makes investing in mutual funds a cakewalk. All you have to do is decide on an amount you are comfortable investing in a monthly basis and decide how long you wish to continue investing in a mutual fund scheme of your choice. If you instruct your bank to allow auto debit, every month on a fixed date the predetermined amount is debited from your savings account and electronically transferred to the fund. Investors are free to continue investing in mutual funds via SIP till their investment objective is achieved.

SIP – A Tool for Building Wealth

If you wish to gradually build wealth, you can do so by starting a monthly SIP in mutual funds. You might not be able to build wealth overnight but can gradually grow your mutual fund corpus via SIP. Also, the early you start the more years you have in hand to build wealth. The amount that you invest every month via SIP might help you with your long term financial commitments. SIPs can be modified as per your income needs as they are highly flexible in nature. Supposed you invested in an equity fund that was performing well for a while but hasn’t performing as per your expectations for the past 6 months. What you can do is you can simply stop your SIP investments and switch to a better performing fund in an easy and effortless manner. Similarly, if you wish to increase or decrease your monthly SIP amount you can do so without having to manually visit the fund house. You can even skip a month SIP if you are facing any financial crunch and continue paying in the following month.

SIP is ideal to inculcate the discipline of regular investing, something which is essential for long term wealth creation. Also, you can refer to SIP calculator, a free online tool that is easily available for everyone that helps you draw a rough estimate on the capital gains you might earn at the end of your investment journey.

It is now possible to create wealth over the long term via SIP without having to time the market, but it is better to understand your risk appetite before investing in mutual funds as they do not guarantee capital appreciation.