One of the most effective strategies for saving for retirement is the systematic investment plan (SIP) in mutual funds. With SIP, you may have money automatically deducted from your savings account on a monthly basis and invested in a mutual fund plan that best suits your investing goals and tolerance for risk. Because it requires monthly contributions from your earnings, SIP may be a disciplined approach to investing. By taking advantage of fluctuations in the stock market, SIPs in equities mutual fund schemes also enable you to spread out the cost of your investments over time (Rupee Cost Averaging).

Let us learn more about SIP investments see how you can accumulate a wealth of Rs.9 lakh by investing Rs.10000 for five years in a mutual fund.

What is a mutual fund?

First, you will need to understand a mutual fund and how it works. A mutual fund is a kind of investment vehicle that combines the capital contributed by a number of different investors in order to make investments in a diverse range of asset classes and sectors. If you pay careful attention, you will see that each mutual fund invests a specific amount of its total assets in a firm that falls under one of many different market categories.

The operation of mutual funds is a rather straightforward process. It obtains capital from a variety of investors and then invests that capital across a variety of asset classes, including stocks, bonds,\

securities, and shares, among others. The company that is providing the fund will choose an individual to serve as the fund manager. This individual is responsible for making decisions about the investments made with the money. The name given to this organization is the asset management business (AMC). AMCs are permitted, under the criteria established by the Securities and Exchange Board of India, to provide a variety of mutual fund options to investors (SEBI). SEBI is the government agency in India that oversees investments in mutual funds.

What is an SIP?

An SIP, or systematic investment plan, is a simple way to invest that may help you reach your financial objectives by putting away a certain amount of money at regular intervals. Instead of making a large initial investment in a Mutual Fund, you may spread out your contributions over a longer period of time (monthly or quarterly). It’s a good replacement for PPF and insurance policies, both of which need significant time requirements. It is best to start early and maintain a consistent investment schedule to reduce the total amount of money required to reach your financial objectives.

Earning Rs. 9 lakhs in five years

Now, let us see how you can accumulate Rs. 9 lakh in five years by investing Rs.10000 monthly. For this, let us use an SIP calculator.

You will need to input your goal amount, monthly payment, and time period here. Through this we can find the average return of the mutual fund you should be looking for.

You can use any SIP calculator that is available on the internet for this. Regardless of the calculator you use, the result will say that you will need to invest in a fund that gives your 15% returns on average.

Usually, equity funds are the type of mutual funds that gives you returns in that ballpark. Equity funds invest in stocks, so they do come with a higher potential for risk. If you are an investor who wants to use a conservative option, you may want to increase the time horizon.