There are two main ways to invest in a mutual fund. The primary and the more popular know way is investing a lump sum amount. This is mainly done either to appreciate or protect the capital. Some investors are still under the conception that lump sum investment is the only way to invest in mutual funds. But what if you want to create a corpus through mutual funds? A systematic investment plan or SIP is something that you can use here. SIPs allow you to invest in your favorite mutual funds in monthly installments. Let us learn more about mutual funds investments through SIP and see how you can calculate the same.
What is a SIP?
A SIP is not an investment option but rather a way to invest in mutual funds. You can use a SIP to invest in any mutual fund of your choice. SIP lets you invest in mutual funds at regular intervals. The most common choice of interval for SIP is monthly. A monthly SIP can ensure your investment plans run smoothly even without your intervention.
Two main factors help when you choose to invest through a SIP. First is the autopay facility. The same is a tool used for automatic investments from your bank account to the fund of your choice at regular intervals. You could set up an autopay for SIP monthly, and your investment will run smoothly without your intervention. But fret not, the autopay facility is very flexible, and you can stop your instalments or change your investment amount any time you want.
The second factor is compounding. Compounding happens when the returns that are generated from an investment are reinvested into the fund itself. When this happens, the compounded corpus starts to earn earnings.
For example, if your investment is Rs.1 lakh and your earn Rs.1000 from it, the same will be added to your corpus so that the compounded corpus of Rs.1.1 lakh will start to earn profit thereafter.
Why should you choose SIPs?
There are some tempting reasons why you should consider choosing SIPs for your investments. They are listed below.
- SIPs make investing disciplined. Combined with the above-mentioned autopay facility, your investment will run smoothly even without your intervention. Even if you opt-out of the autopay feature, the fund house or the broker through which you invest will remind you of your investment.
- SIP is easy on your pocket. You don’t need to shed out a large corpus to begin investing, and instead, you can create such a large corpus in due time.
- SIPs are beginner-friendly due to the same reason above. There is no risk of you choosing the wrong fund as only a little amount is at stake, and as long as there is no lock-in period, it is easier to switch to another fund as well. Even the autopay facility that comes with SIPs is flexible in a way that you can choose to stop the autopay or change the autopay amount whenever you want to.
How to plan SIP investments?
The best tool that helps you plan SIP investments is a SIP calculator. There are three main numbers related to a SIP investment – the returns of the fund, monthly investment, period, and total corpus. The calculator helps you choose these numbers according to your goals. For instance, if your goal is to create Rs.1 crore in 15 years, you can input these values, and the SIP calculator will help you figure out the amount you should invest every month.
The SIP calculator is an instrumental tool that helps with your SIP investments. Ensure you choose a fund rightly as well to make the best out of your investment.