Going forward the gap may widen as food prices mainly vegetables, fruits, edible oils, pulses meat may not soften immediately. And therefore, people living in cities should have to think about an investment which helps them to hedge against rising inflation and achieve their long term financial goals as well.
Investing in equities or shares is one of the best methods to beat inflation. But a lot of people get worried when the market tanks and they prefer to stay away from the equities. One of the best ways to fight market volatility and inflation as well is to invest in a mutual fund through SIP (Systematic Investment Plan). Not only can one beat inflation but can also create a good corpus over a period of time with a decent return on investment to achieve financial goals through the SIP route.
Mutual funds are managed by professional fund managers and pool the investors' money into diverse financial instruments such as stocks, bonds and others. As beginner investors have limited financial resources and lack the wherewithal to pick individuals stocks, they gravitate towards mutual fund investment plans.
SIP mutual funds are a buzzword in the investment world today as they allow a person to invest a predetermined amount in the market at regular intervals. They come in many shapes and across time horizons. Among SIP funds, equity funds invest in equity, debt funds are focused on debt instruments, and hybrid funds' investment portfolios are divided between equity and debt instruments. And SIP funds are available for various time periods such as daily, monthly, quarterly and semi-annually.
Small is beautiful, affordable and easy to use. SIPs are 'small and smart' financial products for the small investors. Mutual fund SIPs can be started for as little as Rs 100 a month, depending on factors such as income, risk appetite and financial goals. A smaller monthly investment is easier on the wallet, compared to lump sum investments. And there is immense room to scale up the invested amount thereafter, depending on one's financial situation and portfolio growth.
The market cannot be timed. The best of us often fall prey to chasing market rallies due to fear of missing out on profitable stock transactions. Conversely, panic selling occurs near lows as the investors scurry to salvage something from a sinking ship. Automating the investing process is the best approach to investing as it leaves nothing to chance and emotional frailties. In the case of SIP, a fixed amount can be auto-debited on a monthly, quarterly, semi-annually or annual basis through ECS (electronic clearance service), thereby allowing the interplay of technology, maths and algorithms to take emotions out of markets.
Compounding is an important principle of the investing world. It works by growing the principal amount, augmenting it with previously accumulated interest and thus ensuring a growth in the entire amount over a period of time. A SIP makes it possible to increase the investment amount by a fixed amount and thus get the benefit of compounding. The SIP investor purchases more units of a mutual fund when the market is down and vice-versa, thereby lowering the average investment cost and averaging out the purchase price.
The mantra, 'slow and steady wins the race', is a critical element of successful investing. Good investing is boring. According to the well-known economist Paul Samuelson, "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." George Soros, the celebrated hedge fund tycoon, also had a similar take on investing. "If investing is entertaining, if you're having fun, you're probably not making any money," he said.
Systematic Investment Plan is a smart financial planning tool that helps you build wealth, step by step, over a period of time and benefit from the power of compounding and rupee-cost averaging.
So just go and SIP-It before the pangs of rising inflation eat up your financial goals.