For a long-term investor prepared to take the minimal risk, mutual fund investments are a good tool. If an investor chooses the systematic investment plan (SIP) option, the risk factor in equity mutual funds is further reduced. An investor, who makes a mutual fund SIP investment, receives an average return on the growth provided by the markets during the investment period.
Investment professionals advise starting a long-term SIP at any time and continuing to do so without worrying about the state of the market. Although it is advisable to begin investing as soon as possible, mutual funds can be a good option if someone is unable to start saving for a long-term goal in the early stages of their employment.
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Consider taking a Rs 50 lakh home loan and repaying the bank the principal amount plus interest after 20 years. SIP is one solution to this. Let’s attempt to make sense of it with numbers. Obtaining a loan for Rs. 50 lakh at an 8% annual interest rate will make the EMI at Rs 41822 per month. The total interest paid on a loan with a 20-year term would be Rs. 50.37 lakh.
The house cost Rs 50 lakh. Money spent to repay the home loan and including will be just a shade over Rs 1 crore. Let’s now discuss SIP. Consider this you only put in 25% of the EMI or Rs. 10912. You may expect a 12-percent annual return from this with an Rs. 1.1 crore available in 20 years.
A Systematic Investment Plan (SIP), also referred to as SIP, is a tool provided by mutual funds to help investors make disciplined investments. The SIP option enables an investor to make fixed investments in the mutual fund scheme of their choice at predetermined intervals.
The predetermined SIP periods might be weekly, monthly, quarterly, semi-annually, or annually, and the fixed amount of money can be as low as Rs. 500. Due to average costing and the power of compounding, an investor who chooses the SIP way to invest can do it in a time-bound manner without worrying about the state of the market.
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