An SIP (systematic investment plan) is a prudent financial mode using which you can easily invest in the mutual fund of your choice. Through this route, you can invest a predetermined amount at fixed time periods in a mutual fund. This route makes use of an electronic clearance service (ECS) mandate to automatically deduct a predetermined amount from your savings account at fixed intervals, say, monthly, quarterly, half-yearly or yearly as per your instructions in the selected scheme. Continue reading to understand ways to strategically meet your different financial goals.
How can you use a mutual fund SIP to fulfil your different financial goals?
- Early work phase
This is a phase that may cover an age range of anywhere between the early 20s and late 20s. In the case you are in this stage, then there are high chances of you being unclear regarding your financial goals, particularly those with long-term time frames. Remember that this is the best phase, to begin with, your investments for your long-term goal to create massive wealth through the power of compounding using SIP mutual funds.
Starting your SIP mutual fund investment at this stage will also allow you to become financially disciplined and responsible. At this phase, one of the important long-term financial goals, you must eye on is corpus creation for your post-retirement life. Starting your retirement investments at this phase will allow you to generate a higher corpus over a long time-period with a small investment amount. For example, if you start mutual fund investment through SIP at 21 years with an investment amount of Rs 1,000 per month at an annualised rate of 13 per cent per annum, you will generate a retirement amount of Rs 1.94 crore by 60 years of age. However, if you begin your SIP investment in a mutual fund at 50 years, you will need to invest a monthly amount of Rs 75,000 in the same fund generating the same return rate to form the same retirement corpus of Rs 1.94 crore.
- Middle-aged or sandwich phase
This stage covers time frames between the 30s and 50 years. At this phase, all the family obligations may be upon you ranging from taking care of your ageing parents to paying your kid’s tuition fees to repaying EMIs towards a home loan or car loan. Once your child starts going to school, you must ensure to start investing in a preferred mutual fund to generate a higher corpus for your kid’s higher education costs within the deadline.
Also, you must start investing to create an adequate corpus for your child’s marriage. To attain this goal also, you must make sure to start your investment in a mutual fund via SIP. Besides these, simultaneously make your short-term goal investment through SIP in debt funds. Short-term financial goals may include corpus creation to build an emergency fund, arrange a vacation trip abroad, etc. A debt fund is a recommended instrument to meet your short-term goal as it offers satisfactory returns and capital preservation features.
- Pre-retirement phase
This is a stage that ranges from your early 50s to retirement. Your major focus at this stage must be to attain your required retirement corpus. As you may have the highest income at this stage and may be free of any debt obligation, you must ensure to invest bigger investible to attain your retirement corpus through SIP.
Also, as you approach your retirement age, say once you are 2-3 years away from retirement, it is advised to liquidate your retirement investment in an equity mutual fund via SIP to invest in short-term debt mutual funds. This measure is recommended to save your retirement fund from any market volatility. However, instead of completely switching to debt investment from an equity fund, you must opt for a steadier approach where you need to calculate the expected annual expenditures during your post-retirement. Once you are done, you must start transferring this computed amount periodically before reaching the age of retirement. Using this approach will help you to maintain adequate exposure to equity during your retirement days also. This would lead to higher inflation-adjusted returns and reduce the risk of witnessing a shortage in your retirement corpus during your retirement years.
So, you see, by periodically investing a small amount systemically through an SIP in a mutual fund, you can attain your long-term goals easily. Note that to make the most out of your long- and short-term financial investments, you must use an online SIP calculator. By using this calculator, you can get an accurate and quick outcome on the returns you may expect to receive based on your investment.