Every person has particular life ambitions and objectives. Long-term objectives include financial planning for the golden years of life, a child's education, or even purchasing the ideal home. Short-term goals include taking a dream vacation or purchasing a flashy car. But in order to make these ideas a reality, we need the support of a suitable corpus. It has been repeatedly demonstrated that beginning with a carefully planned investment early in life increases the likelihood of amassing the necessary corpus.

SIP: A Brief

The Systematic Investment Plan (SIP), which allows investors to invest a predetermined amount of money in different mutual fund schemes on a regular basis, offers a foolproof solution to all of their corpus-building problems. This simple and wise method of investing encourages investors to develop a habit of saving money and accumulating wealth. SIP's "Rupee Cost Averaging" function, which purchases more units when the NAV is low and fewer units when the NAV is high, keeps investors informed of market volatility.

However, it is crucial to select the appropriate SIP type based on the relevant requirements. Similar to how an investor's portfolio should include a higher equity component for long-term ambitions, fixed-income schemes can offer consistent returns for short-term plans. The type of SIP, a person wants to pursue depends on his or her risk tolerance. The SIP computation is typically thought to be too difficult by investors. However, this magic number can quickly take shape when equipped with an excel sheet and the necessary statistics. We will lay out a step-by-step process for doing so in today's article.

Factors to consider when selecting a SIP

Checking the SIP market's history

Older funds are preferable since they have a history that investors may examine and learn from. Investors use the "alpha" yardstick as a standard to measure the success of funds since a positive alpha indicates that funds were executed well, and vice versa. Additionally, picking well-known Fund houses is a good idea. The fund manager's expertise has a significant impact on the fund's performance. Particularly during times of crisis, investors can review the historical performance of funds handled by the fund manager.

Determining the corpus amount

Investors must provide real numbers since mental computations that give a false sense of security can be quite harmful. The figure shouldn't be chosen at random; it needs to have a plausible rationale.

Take inflation into consideration.

Money loses purchasing power over time as a result of inflation. For example, a bottle of Pepsi might cost twice as much in ten years as it does now. So, in order to ensure that they have enough financial resources to achieve their goals, investors must inflate the intended corpus amount.

How does making SIP investments help you build wealth?

It grants you a number of units in return for the money that was contributed to the mutual funds.

Let's say, for instance, that a mutual fund's NAV is currently Rs 20. You will now receive 50 units of the plan if you deposit Rs 1,000 in the mutual fund. Your investments will increase in line with the mutual fund's rising NAV. Therefore, if the NAV of this fund increases to Rs 30 the next year, the 50 units you purchased for Rs 1000 would now be worth Rs 1,500. This is how your investment develops, assisting you in building long-term wealth.