Systematic Investment Plan - The route to an easier retirement

Investing in a SIP helps you plan your retirement without hassle. We explain how.

Any investor knows the value of putting in money in the most useful financial instruments for the best returns. However, what about the young investor, who has little experience of the markets but who wishes to create an additional income? Or the person who has hit his mid-40s and wishes to enjoy a worry-free retirement, but has only his income from business to fall back on?

For such investors, there is a way out: investments in mutual funds. However, they may not always have a high amount of funds at their disposal which might stop them from creating a diversified portfolio right away. Those investors who would like to create a portfolio on little sums of money should consider SIPs.

What is SIP?

A Systematic Investment Plan is a product that allows investors the chance to put in equated regular investments in a mutual fund. There is no need to put in a large chunk of money to buy the fund, when equated payments will do. Hence, instead of paying Rs 10,000 upfront, the SIP mutual fund allows you to pay 10 instalments of Rs 1,000 each. Hence, you can purchase the best mutual funds without spending a lot of money or liquidating other assets.

How can SIPs help in planning retirement?

Planning for the retirement must begin from the late 30s onwards. It does not require one to set aside a huge corpus of money or liquidate an asset like property – though if left too late, these measures might be necessary. The size of the fund and when one begins to plan it depends on a variety of factors, such as current age, current income, projected future expenses, risk appetite, future financial objectives and degree of diversification sought across investments.

Every person planning for his retirement is advised to invest in mutual funds, which offer good capital appreciation and the opportunity to also earn regular income over the long term. Some mutual funds also offer tax benefits, which are added savings. Besides, one can start a mutual fund on low reserves of funds and still build a solid corpus for the future.

The benefit of SIPs is that an excellent mutual fund portfolio may be built without amassing too much wealth at the outset. Starting the SIP mutual fund at a relatively younger age means that you have enough time to build the fund and hence, compound your wealth. The SIP investment plan helps you invest sums of money fairly regularly, and this inculcates fiscal discipline towards savings.