In a One Day International (ODI) cricket match, if you post a score of 300, it is generally considered a good score. The opposition has to work hard to reach this target. Batsmen are expected to consistently hit fours and sixes in order to chase the score. But if you break it down, there are exactly 300 balls delivered in a 50 over match. This means the batsmen have to hit just one run per ball to achieve victory. Sure, the match may become a bit boring but you reach your target in the end. Investing in a Systematic Investment Plan (SIP) is quite similar. Let’s find out how.
Steadily build your innings
Like an ODI match, investments through SIPs is all about building a steady corpus of money over a period of time. When you invest in SIPs, you cannot expect huge financial returns after a day or even a week. The results become evident after a few years. That’s why, for long term financial goals like building a house or funding your daughter’s education, experts recommend steady investments in equity funds over the long term. Over the years, you can see your corpus grow into a substantial amount.
Discipline and focus
A huge goal in front of you shouldn’t stop you from achieving it. A target of 300 might look tough but once you start playing your game and accumulating runs, the chase gets easier. Similarly, a financial target of Rs 1 crore can look terrifying. But that shouldn’t prevent you from investing. First, identify how many years you have to reach your goal. This gives you an idea of how much you should invest each month. By investing a fixed amount of money in a SIP month after month, you can slowly but surely reach your target. When it comes to SIPs is that you need discipline and focus more than gimmicks like market timing.
Boundaries help you reach your goal faster
A run-a-ball is good but the occasional boundary can help you reach your score much faster. And with regard to mutual fund investments through SIP, compounding helps you do the same. When you reinvest your earnings into the fund instead of spending them, you can generate greater returns in a shorter period of time. This is the power of compounding. In other words, the money you earn in turn starts making money for you. This can help you meet your financial goals at a faster rate.
An arsenal of different shots
It is important for a batsman to have different shot-making skills in his arsenal. This way, he can tackle any ball delivered by the bowler. Similarly, by investing in mutual funds, you have access to different kinds of mutual funds even with a small investment. This is known as diversification. Through diversification, your risk of exposure gets spread across various sectors and companies. This allows you to minimize your risks and maximize your gains.
To sum up
Investing in SIP is a lot like chasing a large score in an ODI match. The goal may be far away but through steady investments and careful planning, you can get closer to your financial dreams one step at a time.