Building a respectable retirement fund is one of the fundamentals of happy retirement life. A sound retirement corpus can help you live your life with less worry. One critical factor in building a good corpus is starting early. Many people delay starting to invest in their retirement fund, thinking they have adequate time. But if you start early, you can start small and take your time to build a fund that is big enough. SIP is something that can help you in this. Let us learn more about SIPs and see how it helps you plan your retirement funds.
Systematic investment plans
There are two main ways you can invest in a mutual fund. Either you can put in a lumpsum amount of money or invest a small amount of money every month to slowly build a corpus. The latter works bests if you are planning to build a retirement fund. This investment method is called a systematic investment plan or SIP. By setting aside a smaller amount every month, you can ensure that your investment is not taking a massive bite out of your income, yet it stays relevant and continue to grow.
Most mutual fund advisors recommend SIPs over investing a lumpsum in mutual funds. This is because when you invest in a lumpsum, you have to factor in how the market will perform in the future to make sure you don’t lose money. With SIPs, since the amount of money you invest initially is small, the risk will be more negligible.
SIPs for retirement funds
Certain factors make SIPs the perfect choice for building a retirement fund. Let’s go through some of them.
Slow and steady wins the race
A retirement fund is something that should be built over time. Unfortunately, investing a lumpsum often can’t make returns enough to make your corpus significant enough. Plus, a lumpsum investment could always hurt your monthly budget. Instead, with SIPs, you can start slowly and build a corpus that is adequate for a happy retirement life financially.
You have time to course-correct
If a lumpsum investment in a mutual fund turns out to be a wrong decision, you would be putting the whole amount of money at risk. This is especially true if you are new to investing. But with SIP, since you are investing only a small amount of money every month, there is time for course correction if you feel like you have chosen the wrong investment.
It is more convenient
Investing in smaller instalments every month is much easier than investing a large sum at once. To begin with, putting aside a large sum of money at once could mess with your budget. But the same can be avoided by putting aside a minimal portion of your income every month. The amount need not be that significant when building a retirement fund. If you start early, you can start with an amount as small as Rs.500 and increase your monthly investment when you can afford to do the same.
Compounding and its magic
What powers SIP investments is compounding. In terms of investment, compounding is when returns from your investment are reinvested into the principal amount, and the whole amount, including the previous returns, start to earn profit for you. When you stay invested for a longer period of time, compounding can do wonders to your capital.
Proper planning is one element that can ensure your investment is profitable. Use tools like SIP calculators to properly research and plan your investments. This can make sure you get exactly what you want out of them.