Starting your investment journey with a mutual fund SIP in your 20s and 30s can be a game-changer for financial growth. Click to learn more.
SIP Investment
There is a popular saying that the ideal age to start your investment journey is in your 20s. One of the most effective ways to start your investment journey is through a mutual fund SIP. It allows the flexibility of starting your investment from an amount as low as ₹100 per month. This low entry point is particularly beneficial for young professionals, as disposable income is often limited in the early stages of their careers.
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In this article, we will explore the concept of SIP, discuss why it is a great option for young professionals and highlight some of the best SIP strategies for young investors. Keep reading!
What Is an SIP?
SIP (Systematic Investment Plan) is a means of investing in a mutual fund scheme through which investors contribute a fixed amount at regular intervals of their choice. This can be monthly, quarterly or annually. SIP allows investors to accumulate wealth over time and earn exponential returns, benefiting from the power of compounding.
The beauty of making an SIP investment lies in a phenomenon called rupee cost averaging. It is when a fixed amount fetches you less number of mutual fund units when the market is high and more units when the markets are low, thus averaging out the short-term price fluctuations.
Why Should Young Professionals Opt for SIPs?
Starting your investment journey with a Systematic Investment Plan (SIP) can be a game-changer for financial growth; here is why:
1. Time Advantage
Starting at a young age provides a time advantage as you get a longer investment horizon. Hence, the earlier you start, the more you will be able to reap benefits from your SIP investments.
2. Power of Compounding
Starting your SIP from a young age offers a longer time horizon, which helps you reap the compounding benefits. The power of compounding can be seen better with a long-term SIP investment, as allowing more time will help you multiply your returns exponentially.
3. Discipline
Investing in an SIP inculcates a disciplined approach to investing and helps you build a savings habit. Moreover, by automating your monthly SIP plan, you can control your temptation towards unnecessary spending.
4. Affordability
An MF SIP allows the flexibility to start your investment from an amount as low as ₹100 per month, making it affordable for young professionals with a limited income.
Top SIP Strategies for Young Investors
There are several key strategies that you can follow to maximise your returns from an SIP, which are as given below:
1. Start Early, Stay Consistent
As mentioned before, the sooner you begin your investment journey, the more time your money has to grow. Even small and consistent investments can turn out to be a substantial corpus; such is the power of compounding. Therefore, young professionals are always recommended to start their investment journey as early as possible, no matter how small their contribution.
2. Define Your Financial Goals
The most important thing before starting your investment journey is setting up your financial goals and objectives. It can be anything like buying a car, buying a house, a vacation plan, building a retirement corpus and more. Having a clear goal helps in choosing the right funds and keeping you motivated throughout the time till it is fulfilled.
3. Select the Right Mutual Fund
Choose the right type of mutual fund based on your financial goals, risk tolerance, financial status, etc. There are many types of mutual funds you can choose from; here are the main types:
- Equity Mutual Funds: These are the types of funds which primarily invest in stocks and offer higher returns, but at the same time, they also bear higher risk.
- Debt Mutual Funds: They invest in fixed-income securities such as bonds, debentures or money market instruments. They carry relatively lower risk but offer modest returns.
- Hybrid Mutual Fund: A hybrid mutual fund is a mix of equity and debt investments, allocating assets to both equity shares and fixed-income instruments in varying proportions.
4. Apply the 50:30:20 Rule to Your Finances
This 50:30:20 rule is a budgeting strategy which you, as a young investor, can implement to plan a monthly budget. It segregates your total monthly income into three categories:
- 50% for Essentials: Consider allocating 50% of your monthly income to your necessary expenses, such as rent, groceries, and utilities.
- 30% for Personal Wants: The next 30% of your monthly income can go towards expenses such as small outings, lifestyle expenses, entertainment or dining out.
- 20% for Savings and Investments: Lastly and most importantly, use the remaining 20% of your income for investments and savings, such as mutual fund SIP By following this rule consistently, you will be able to manage your finances in a structured manner while consistently building wealth through SIPs. Moreover, if your monthly income increases, you can always increase this percentage to fulfil your goals and objectives faster.
Conclusion
Starting a SIP at a young age is the best thing you can do, and it can turn out to be a game changer for accumulating long-term wealth. Making small investments consistently can help young professionals build a sizable corpus over a longer time horizon by leveraging the power of compounding. Moreover, starting early not only helps you maximise returns but also helps you develop a healthy savings habit right from an early stage of life.
Disclaimer:The information provided on the Website does not constitute investment advice, financial advice, trading advice, or any other form of advice, and you should not interpret any of the financial content as such. Please conduct your own due diligence and consult with a financial advisor before making any investment decisions. Midday does not endorse or promote any such activities, and you access them at your own risk, fully understanding the monetary and legal consequences involved. Midday shall not be held responsible for any losses you may incur as a result of using any such apps or websites.
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