Mutual Fund: How Systematic Investment Plans (SIPs) Help You Save For Long Term Goals

Mutual funds have emerged as one of the simplest financial tools for an investor to achieve financial goals. Whether one has the need to save for short-term goals or for long term goals such as children education, arranging a down payment for a home loan or for one’s own retirement, there are mutual funds available in all variations. What defines the working and the performance of each of them is the underlying asset-class. Those mutual fund schemes which have predominantly higher allocation to equities are suited for long term goals while those with higher allocation to debt are suited for short-to-medium term goals.

As seen in several studies done in the past, the potential of equities to generate a higher real rate of return than other assets is more over a long term. Hence, investors who have to achieve goals which are at least 10 years away may consider investing through equity mutual funds.

On the journey towards goal-based investing, the volatility associated with the equity as an asset class needs to be taken in one’s stride. The NAV of equity mutual funds may witness dip over the short-to-medium term but instead of redeeming the investments, staying invested to reap the benefit over the long term remains a better alternative. Rather than trying to time the market, it is important that one follows the approach of ‘time-in-the market’. The more time your money remains in the equity mutual funds schemes, higher is the potential to generate an effectively higher return.