How Small Consistent Investments Can Unlock Long Term Wealth and Financial Freedom
Wealth creation is a key objective for many people aiming for financial independence, a comfortable lifestyle or even to have a secure future. One of the best means to achieve this is by investing through Systematic Investment Plan (SIP). SIPs have become popular among retail investors in recent years due to their convenience, flexibility, and ability to help build wealth over the long term.
A Systematic Investment Plan is a simple method of investing in which you invest a fixed sum of money at regular time intervals (weekly/ monthly/ quarterly) into a mutual fund. One can start by investing as little as Rs500 every month. SIP offers a hassle-free and disciplined means of investing. Like the proverbial tortoise, SIP is slow and steady but reliable, helping you grow your wealth over time.
One of the easiest ways to create wealth over the long term is through investing in SIPs of equity mutual funds spanning across 10/15/20 years. By investing across decades, the time spent in the market helps to tap into the benefits of rupee cost averaging and the power of compounding. The key here is not only investing regularly but also staying invested for the full tenure.
"Like the proverbial tortoise, SIP is slow and steady but reliable."
For example, with a monthly SIP of Rs2,500 at an expected return rate of 12% per annum, your corpus can grow to Rs5.60 lakh over a period of 10 years. Over the investment period, you would have contributed Rs3 lakh, while earning Rs2.60 lakh in returns. This demonstrates the power of SIPs in building wealth over time.
SIPs use rupee cost averaging strategy of buying fixed amount of a particular investment at regular intervals, regardless of NAV. When the market goes up you get fewer units and when it falls you receive more units. Since you are buying the units across market cycles, the purchase cost gets averaged out.
SIPs instill financial discipline by promoting regular saving, making them suitable for everyone - whether someone is just starting out in their career or seeking low- risk investment options. For most investors, making large investments is challenging. However, small, consistent investments through SIPs can build a significant corpus over the long term.
Investing your money on lumpsum basis in the market can feel risky, particularly if the market is volatile. But SIPs invest your money in a phased manner, lessening the likelihood of making impulsive decisions based on short-term market fluctuations. It’s a safer, more stable way to invest.
SIPs are best suited for long-term investment goals. If you are planning to save for retirement, your child’s education or a dream home, SIPs enable you to remain invested and see your money grow steadily in the long run. By regularly investing in diversified mutual funds via SIPs, investors can build considerable wealth over a period of time.
Conclusion: SIP is a powerful tool for creating long term wealth even with modest beginnings. It offers an accessible, cost-effective and reliable way to create wealth by making smart, regular investments that grow over time. Using the power of compounding, the advantage of Rupee Cost Averaging and the self-discipline instilled by SIPs, one can build substantial wealth for the future. The success mantra is to start early and invest consistently, so your investments can grow over a period of time.
Disclaimer: This article is not part of the Outlook Money editorial feature. The views expressed are personal and do not necessarily reflect those of Outlook Money. Readers are advised to do their own research or seek professional advice before making any investment decisions.
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not indicative of future results
Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature