5 reasons why SIPs are important for millennials
Are you a millennial who is always postponing investments for a later date? If yes, then there is something very simple that you can do to start your investment journey.
We are talking about Systematic Investment Plan or SIP, which is nothing but a facility to invest in mutual funds regularly.
This article will talk about the usefulness of SIPs for millennials.
What is SIP?
SIP lets you invest in a mutual fund at pre-determined periods rather than all at once. You can choose your preferred frequency. After you set up a SIP, the mutual fund will automatically debit the SIP amount from your bank account and buy mutual fund units with the same amount.
SIP is a preferred investment option for individuals with a regular source of income.
Why are SIPs important for millennials?
We know people born between 1981 and 1996 as millennials. Most people are well established in their careers, making it a great time to invest if they haven’t previously. However, many millennials put off investing for various reasons, including a lack of funds. This is when a SIP comes in handy.
Choose the amount you are comfortable with
The beauty of investing in mutual funds through SIP is that you don’t need a lot of money to invest. You can invest Rs. 500 or Rs.50,000 in a month. But, the main important factor is to start, no matter how small the amount is. Also, you do not have to be stuck investing the same amount, as you can quickly increase your SIP amount whenever you want. It is up to you.
You don’t need to look at market levels every day
If you have friends and colleagues who are active traders and think that this is what investment is, you are in the dark. Investing doesn’t have to be convoluted or take all of your energy. SIP makes it possible through rupee cost averaging.
Let us explain. When you invest in mutual funds through SIP, you invest in a specific sum of money every month and, based on that amount, the fund house will allot mutual fund units. So, as the value of a mutual fund unit depends on the value of the underlying instruments, the fund house will allocate you more units when the equity markets are down and fewer units when the market is going up. And in the long run, these units will provide capital appreciation.
In this way, the cost of acquiring the units gets averaged out, and this process is called rupee cost averaging.
This is ideal for millennials, who are perhaps the busiest of the generation. This is especially useful if you are just getting started with investing.
SIPs can help build an emergency fund
Even for millennials, an emergency fund is an essential element of a properly planned financial plan. An emergency fund should typically have at least six months’ worth of expenses. However, it may not be possible to build the emergency fund in one go. This is where SIPs come into the picture. Setting up a SIP in a liquid fund can help you build an emergency fund. This emergency fund can come in handy during a job crisis or any other emergency.
Plan and achieve your financial goals
Millennials have a lot of goals. Goal planning is required to achieve these goals. You can tag each of your plans to a SIP to achieve your dreams. SIP helps you determine exactly how much money you need to put in every month using SIP calculators to attain your goal in the time frame you wish.
Planning for a comfortable retirement
Let’s face it. Retirement is real. The time might come when you may not earn a monthly salary. And, there are high chances that you would end up spending almost the same number of years as a retired individual as you would as a salaried individual. It won’t be wise for millennials to delay retirement planning.
Investing in a disciplined way through SIP during the working years can help build a retirement kitty. And the sooner you begin, the higher your chances of amassing a sizable retirement fund. So, if you invest Rs.5000 per month in an equity fund at 30 years till 60 and increase the SIP amount by 10% every year, you will end up with a corpus of Rs. 4.17 crore by investing a total amount of Rs.98.7 Lakhs*.
Conclusion
SIPs are a fantastic investment route, especially for millennials who are putting off their investments. Investing early is critical to growing wealth, and if you’re unsure about investing, SIPs are a great way to get started.
*assumed rate of return – 12%
