When it comes to financial independence, many people have the misconception that saving money is enough. However, creating a substantial amount of wealth by just saving a part of your cash inflow isn’t the fastest way to do it. Having an investment portfolio will on the other hand help in wealth creation if done wisely.
Systematic Investment Plans (SIPs) are one of the best investment choices that can help you gain financial security and achieve your goals faster. Sai Bhosale, a chartered accountant and financial advisor explains what SIP is, “It is an investment option offered by Mutual Funds where one can invest a fixed amount in a Mutual Fund scheme at regular intervals, say once a month or once a quarter, instead of making a lump-sum investment.”
However, how do you know the ideal term you should select for a SIP? Bhosale simplifies it for us.
Focus on Goals
To be successful in your investment endeavours, it is important to define your goals. “Goals could be short term, medium-term, and long term. Envision your future and list your goals like retirement plans, vacations, children’s education and so on. Match the duration of your SIP to achieve different financial goals at various stages in your life,” Bhosale advises. This will bring you discipline and consistency in managing your finances.
Do the math
“Calculate the duration of your SIP by analysing your financial needs, total investment value, returns on your investments, taxes, and inflation,” Bhosale explains. This can be done by you, a trusted loved one or a professional advisor.
Aim for Wealth Accumulation
“Keeping the duration of your SIPs longer, the magic of ‘power of compounding’ comes into play. A minimum of 5 years of diligent investing is recommended to even out losses and reduce the effect of inflation,” Bhosale points out. Investing in SIPs for a longer period will be more beneficial in growing your wealth.
Review and Re-Plan
“With changing lifestyles and circumstances, one needs to review their financial goals at intervals and re-plan their financial future. This means changing the duration of your SIPs to be consistent with your financial goals,” explains Bhosale.
Seek Professional Help
Seeking the help of a professional will ensure your personal bias or lack of substantial knowledge doesn’t impact your financial decisions. “Sometimes our emotions and behavioural patterns impact our financial decisions and mistakes are bound to occur. It is important to seek advice from a good financial planner to set and alter the duration of your SIPs,” Bhosale points out.
Also Read: Systematic Investment Plan (SIP) Guide For Beginners