Get rich slowly? Nah! Turbocharge wealth with SIPs!

It is no secret that mutual fund investments are all the rage in India. However, did you know that the SIP mode of investment is the most popular form of investing in mutual funds? Mutual fund SIP accounts stood at 8.2 crore in February 2024, and the total amount collected through SIPs was ₹19,187 crore. Read on to know the best way to turbocharge your wealth through SIP.

How can SIPs help you turbocharge your mutual fund returns?

Here are the benefits offered by SIPs to mutual fund investors:

• Benefit from rupee-cost averaging: SIPs help investors purchase more mutual fund units when markets are low and fewer units when the markets are high. This phenomenon, called rupee-cost averaging, reduces the impact of market volatility on their returns.
• SIP investments help inculcate financial discipline: Compounding yields extraordinary returns only when you as an investor invest regularly and gradually increase your SIP amount. Investing through SIPs helps you develop an investing habit that helps you earn higher returns in the future.
• SIPs can help make the most of the power of compounding:

The power of compounding helps earn high returns by helping you earn interest on interest. You reinvest your earnings in the same mutual fund scheme through SIPs and steadily grow your wealth over time. You can also choose the “step-up SIP” option while starting an SIP to gradually grow your SIP contributions over time.

Points to consider while investing in mutual funds through SIPs:

• Note your investment goals and decide on an investment amount: Having an investment objective can work in your favour since it can help you decide on the right investment amount and tenure. Investment objectives also keep you oriented when you reassess your investments and analyse returns.
• Use an SIP calculator to compare the returns of your shortlisted mutual funds: After creating a shortlist of mutual funds, you can use an online SIP calculator to calculate their returns at the end of the investment tenure. SIP calculators can, therefore, help you plan well for your mutual fund investment.
• Consider your risk appetite before investing in mutual funds: You must thoroughly analyse your risk-taking capacity while deciding on an SIP amount. The risk posed by an SIP investment is also a function of the type of mutual fund. Equity funds, for instance, pose a moderate-to-high risk to the investor. You must decide on a tenure and SIP amount based on your risk appetite.
• Plan for your taxes: Tax planning is an important part of mutual fund investment. Regardless of whether you are investing in a tax-saving fund (example: Equity-Linked Savings Scheme) or any other fund, you must consider the taxation of the fund before investing in it via an SIP.
• Increase your SIP amount regularly: The key to increasing your returns by leveraging the power of compounding is gradually increasing your SIP amount. As the investment amount increases, you earn higher returns by the end of the investment tenure.

You can benefit a great deal by using an online SIP calculator to calculate your mutual fund returns before investing in a mutual fund scheme. In addition to having an investment objective, using an SIP calculator can help you decide on the right investment amount according to your financial objectives.

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