How Do Young Investors Benefit From SIP Investment?

2 Mins read

If you are someone who has recently started their professional career and excited to spend their first salary, just hold on to that thought. Now it is quite liberal for young earners to finally stop asking for money from their parents. When you have money you can buy whatever you want, spend however you like, actually no restrictions. However all this may sound fancy and liberating, the truth is that you are soon going to be bankrupt. Blessed are those you understand the importance of savings at a young age. They are actually on the right path of becoming successful millionaires. That’s because there is no limit for spending. So if you start spending without any savings, you are soon going to need more money to take care of your luxurious standard of living.

But if you want to attain financial freedom over the long term and don’t want to depend on anybody for monetary reasons then you need to consider investing in market linked schemes like mutual funds. Mutual funds are supposed to offer a diversified investment portfolio. They allocate assets in such a way that over the long term the scheme is able to achieve its investment objective. It is the duty of the fund manager to implement an investment strategy and buy/sell securities so that it integrates with mutual fund’s ultimate financial goal.

If you are someone who is young and keen on investing in market linked schemes to earn capital appreciation over the long term then you can consider investing in equity mutual funds. Young investors can actually benefit from long term equity investments if they start an SIP.

What is SIP?

A SIP or Systematic Investment Plan is an easy and hassle free way to continue investing to achieve long term financial goals like retirement planning. You can invest in a mutual fund SIP from the comfort of your laptop or mobile phone and a decent internet connection. With SIP, all one has to do is instruct their bank and every month on a fixed date, a predetermined amount is debited from the investor’s savings account and electronically transferred to the mutual fund. An individual can continue investing in mutual funds via SIP till their investment objective is achieved. SIP investors also benefit from compounding and rupee cost averaging. Investing in mutual funds via SIP may inculcate the discipline of regular investing which is the key to building a decent corpus in the long run. Investors can also refer to the online SIP calculator to determine how much they need to invest at periodic intervals to achieve their ultimate financial goal.

If you start investing early in mutual funds via SIP you are eligible for several benefits. SIP allows power of compounding which in turn plays a vital role in multiplying your small investments into a large corpus. Imagine if you started early investing. You will have more time in hand to save and invest. This means that the corpus that you will accumulate by the time you retire will be twice as much if you started investing after the age of 40. Since you are young you may be even capable of keeping an aggressive portfolio that allocates more assets to equity. You can have a large risk appetite and experiment with risky mutual funds that are known for generating higher income. When you grow old, you are bestowed with several financial responsibilities that may or not allow you to own an aggressive investment portfolio.

Having said that, mutual fund investments are subject to market risks, investors should consult their financial advisor before investing.