Here Is How You Can Introduce SIPs Into Your Financial Plan

Bydhrishtri parikh

As you begin your wealth creation journey, it’s a good idea to understand the various tools available that make investing more seamless. This will ensure that your monthly or quarterly budget never feels overstretched at any time. One such highly effective tool is the Systematic Investment Plan or SIP, used by millions of retail investors today. Let’s understand how you can incorporate SIPs and leverage a SIP calculator to stitch together your investment plan.

  • Allocate funds for investment

The first step is to understand how much you can put away each month or quarter. Make investments a part of your monthly budget. If you can’t set aside a fixed amount every month, then check how much you can put away every quarter. The key is to allocate a fixed amount either on a monthly or quarterly basis but be consistent with it.

  • It’s okay to start small 

There is a misconception that you need to earn a lot of money to start investing. That’s far from the truth. You can start with a monthly investment budget of as low as INR 500 and allow compound interest to do the real work, i.e., allowing interest to be earned on the interest, month after month.

  • Leverage SIP calculators 

By accessing a SIP calculator online through your smartphone or laptop, you can do the math to understand how much you need to invest. For instance, say you invest INR 500 per month in a mutual fund for 30 years. Based on SIP calculation, when you apply an expected interest rate of 12%, that amounts to INR 17,64,957 at the end of the tenure. Of this amount, you only invested INR 1,80,000! The key is to start investing sooner rather than later. In fact, start today.

  • Decide the frequency

Once you have decided the overall amount you aim to invest per year, the next step is to determine the frequency. For instance, do you aim to invest every month or every quarter? This is important because a SIP always must have the same denomination. For example, if you aim to invest INR 24,000 per year, you can divide it into monthly installments of INR 2000 or quarterly installments of INR 6,000, based on your budget allocation. Be sure to choose what you can sustain.

  • Choose the mutual fund 

Next, choose the mutual fund based on your needs and the life stage you’re at.

  • For instance, if you have a higher risk appetite, you can go for an equity-based mutual fund.
  • If you’re looking to save tax, you can invest up to INR 1,50,000 per year and claim deductions under Section 80C of the Income Tax Act.
  • If you need access to funds and want to keep them invested for a brief period, look at liquid or open-ended funds.
  • If your risk appetite is low, but you want higher returns than fixed deposits, go for a debt fund.
  • You can also look at large, mid, low, and flexi cap funds within these basic categories.

The key is to study them well and match them to your risk versus reward appetite. SIP interest calculation can help you understand how your mutual fund will perform over time.

  • Automate your investments

The last step is to automate your monthly or quarterly investments via SIP. Choose the bank account from which the funds will be deducted, and complete the KYC (Know Your Customer) process. It’s ideal to invest directly via the mutual fund house website so that you do not pay any additional amount in brokerage fees. Most fund house websites also have SIP interest calculators that are easy to use.

To Wrap Up 

The best part about making regular investments with a SIP a part of your budget is that you do not need to halt investments mid-way. Wealth creation is a journey for the long haul, and by staying invested for five to ten years and beyond, you can accumulate a good amount of money that is aligned to your goals, be it buying a home, taking a world tour, or paying for your child’s education.