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A 2-minute guide on how to time your SIP correctly

  • Highlights

  • Use a ‘need calculator’ to plan your finances in an SIP

  • Select a tenor with buffer time before a financial goal

  • Select long SIP tenors to grow your wealth

  • Beat inflation with SIP investments

The possibility of earning high returns has made Systematic Investment Plans (SIP) a popular way to invest your savings. In 2016, records showed that small and mid-cap mutual funds yielded 15% in CAGR (Compound Annual Growth Rate) in the past 5 years. Top SIPs can be used to build your wealth and help you start investing for your retirement or other goals. With its high interest and contributions as low as Rs.500, you can benefit from SIPs regardless of your risk appetite. What’s more, your returns are amplified as the interest is compounded.
In order to ensure that you have the funds you need on maturity, it is essential to time your SIP correctly. Here is how you can do the same.

Keeping your goals in mind

You can invest in a SIP in order to provide for future financial needs. While doing so you will need to calculate the potential amount of your future expense. Use an SIP calculator to make this process easier; for example, use this SIP Need Calculator to help yourself by working backwards from the amount you want at the end of the tenor. According to this calculation, you will know how much your total investment amount will be, how much you need to invest each month and your returns on your investment. You can select a SIP tenor according to the time you have until your future expense.

For instance, you may have 5 years before you need to pay for your child’s overseas education. This gives you 5 years to provide for the same. It is also essential to keep a buffer period between your returns and your expense. This is just a precaution to ensure all your losses are evened out. It can also give you enough time to provide for additional funds if you need the same in case of a bad year. This way you can be prepared in advance and avoid last-minute hassles.

Keeping wealth accumulation in mind

Investing in a SIP is a great way to build wealth while combating inflation. This is because inflation is a major deterrent while saving to boost your wealth. In case you want to invest in a SIP for this purpose, you can choose a top SIP with a longer tenor. In order to get the best returns from a SIP it is essential to keep it running for the longest duration you can afford.

If you intend to grow your wealth using SIPs, a minimum of 5 years of investment is recommended by most experts. You can also choose to redeem your SIP or sell the same in case you are dissatisfied. However, most losses are evened out with long tenors. In fact, it is said that even if you invest in one of the worst-performing SIPs you can still get better returns that you would in a government-backed guaranteed investment earning around 8% interest.

Calculate your returns post inflation with an advanced SIP calculator that allows you to factor in the expected rate of inflation and see the post-inflation earnings.

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