Wealth creation is a long-term process, and investing systematically over a longer period works in favour of generating a generous corpus. Systematic Investment Plan (SIP) can serve as an attractive option for your wealth creation journey, especially for small investors who can invest small amounts regularly at periodic intervals.
The duration of your SIP primarily depends on the category of funds you are investing in. For example, when investing in equity-based SIPs, financial advisors typically recommend a minimum tenure of 5 to 7 years. Investing via SIP over a longer period offers the advantage of rupee cost averaging and acts as a shield against market volatility.
Instead of focusing on a tenure-based approach for SIP investments, financial experts often suggest a goal-based approach for SIP. Goal-based approach means that an investor invests through an SIP with the end goal in mind.
A common misconception among investors is that once their SIP instalments are over, they should sell off their investment. Let’s say you opted for a 5-year SIP. At the end of 5 years, you do not have an immediate need for the funds. You can either renew the SIP and continue investing or you may switch to another fund.
The essence of SIP is in its systematic, staggered approach to investing. The longer one stays invested, the better are the chances of sailing smoothly through market volatility.