SIP (Systematic Investment Plan) has become the most preferred method of mutual fund investment today. The biggest reason for this is that it doesn’t require investing a large lump sum. Investors can start investing with a small amount every month according to their income and build a good fund over the long term. Regular investment also largely balances the impact of market fluctuations.
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How to achieve the ₹10 lakh target with a ₹5000 SIP
If an investor starts a SIP of ₹5000 every month and receives an average annual return of 12 percent, it may take about 10 years to achieve the ₹10 lakh target. During this period, the investor will deposit a total of ₹6 lakh. Due to the effect of compounding, the potential return on this investment could be approximately ₹5.6 lakh, making the total fund more than ₹11 lakh. However, this figure may vary depending on market conditions.
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Why are returns not always fixed?
Mutual funds are linked to the market, so the returns are not entirely guaranteed. The 12 percent return is only an estimate, based on the long-term average. Returns may be higher in some years and lower in others. Therefore, patience and a long-term perspective are crucial when investing.
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What are hybrid funds, and why are they considered safe?
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Hybrid mutual funds are funds that invest in both equity and debt. Equity provides the growth potential, while debt provides stability. Due to the presence of two different asset classes, the risk is comparatively lower.