Mutual fund SIP flow was at a new peak in January 2022. The monthly contribution at the end of the month was ₹ 11, 517 crore which is an all-time high figure and better than ₹11,305 crore recorded in December 2021. SIP is a planned way of monthly investment. It allows you to invest a small fixed sum at a chosen frequencyin your preferred fund scheme. This is one of the safest and the most convenient forms of entering the equity market.
Millennials are less likely to experience impulsive reactions, short-term volatility orface the risks of overspending. You can enjoy the benefit of rupee-cost averaging as well. All you can do is simply set up an SIP where the amount will automatically be deducted from your salary account. Below are a few other reasons why millennials with a regular income can think of investment via a systematic investment plan.
1. Start With a Basic Amount
SIPs let you begin investing with as little as ₹500 per month. This is especially helpful for first-time investors if they are apprehensive about parking a big sum. You do not need a lump amount to reap better results. This is because time is of greater importance than the amount of investment. So, millennials can put away as much as they can afford at the moment rather than having to cut down on lifestyle choices. Neither do they have to wait for enough savings to accumulate to use a portion for investment purposes. But know that you will have to invest the same amount weekly, monthly or quarterly. Mutual fundSIP allows you to increase the sum when your earnings see growth and pause at any time without penalties.
2. Power of Compounding
Mutual funds come with two earning types: capital gains and dividends. You can choose to invest and reinvest in the same plan. The interest earned on the accrued interest is known as the power of compounding. You can use a SIP calculator to get an idea of the wealth gain and the expected monthly returns. This will help you plan your finances carefully to be able to grow the desired amount for your short-term and long-term goals. Start early, pick the right mutual funds to invest in and stay consistent to be able to make the most of this feature.
3. Minimises Risk Factor
Investing in Equity Mutual Funds through SIP can reduce the risks. This is because the sum is small and spread over a period of time. You can sail through the ups and downs of the market since the holding timeline is long. This increases the probability of making a profit and lowers the odds of a major loss. Your investment is well-protected from any kind of market crash. Analyse your requirements and risk tolerance level and pick the best mutual fund in India whose objectives align with your profile.
Young investors can start early to ensure a secured future. They can set up an SIP in a liquid fund to be able to create an emergency corpus for future unforeseen events. Make sure to consult a financial advisor to avoid loopholes in the process.