Investment is not primarily focused on increasing wealth but also on accomplishing financial goals like purchasing a house, children’s education and marriage, or retirement corpus. For a successful investment, awareness of the diverse investing options to make informed decisions plays a significant role. In this article, I will discuss the best way to invest money.
Recently the stock market has represented a bullish trend. Investors and traders hope that the index will touch new highs. As the index increases, the amount invested also increases.
Before proceeding further, let us discuss some of the ways of investment.
1. Lump sum investment
In this method, the investor gathers a specific amount and invests it in equity, mutual funds, gold, options or futures, or commodities. Apart from this, certain government schemes generate assured returns, like t-bills.
2. Fixed investment
In this method, the investor invests a fixed amount at predefined intervals, mainly monthly. This investment is also known as a systematic investment plan (SIP). The investment can be done in equity, mutual funds, digital gold, etc.
Ideally, both ways will give you good returns in the long run but what is the right or best way to invest money to get good returns in the short run.
The answer to this question is a systematic investment plan (SIP). SIP will allow you to invest money during both situations. If the market is up or down, then you will be investing and if the market is consolidated then also you will be investing.
The best way is to start investing 10% of your monthly income in SIP and increase it by 10% of your investment after each passing year.
Suppose you earn Rs 30,000 per month and planning to invest. You will start by investing Rs 3,000 each month. If you keep the amount same each month for 10 years assuming a growth rate of 12% per annum. You will end up investing Rs 3,60,000 and the estimated returns will be Rs 3,37,017. The total value will be Rs 6,97,017.
Now assume that you invest the amount for 15 years. The invested amount is Rs 5,40,000 and the estimated returns will be Rs 9,73,728. The total value will turn out to be almost three times that is Rs 15,13,728.
Now assume the rate of return is 10%. The total value you will get after 10 years will be Rs 6,19,656 and after 15 years will be Rs 12,53,773.
This is where the power of compounding works.
If you consider investing a lump sum each, the total value at the end of the term will be comparatively less.
A general advice to every investor is to keep on increasing your investment as your income increases. If you are investing Rs 3,000 per month for a year, then increase it by 5% or 10% depending on your income, after one year. So, the monthly investment for the second year will be Rs 3,150 (5%) or Rs 3,300 (10%).
To conclude, the best way to invest money is a systematic investment plan.
Disclaimer: This article is for knowledge only. You have to do your own research before making a final investment decision.
Frequently asked questions
Is SIP better than FD?
Yes SIP is way better than FD. In FD, you will get around 5 to 6% per annum, whereas in SIP you are expected to get 10 to 12% per annum.
Is SIP 100% safe?
No, SIP is not 100% safe because of factors like investment instruments, risk tolerance of the investor, and market volatility.
Can I withdraw SIP anytime?
Yes, you can withdraw SIP at any time. But there are certain exceptions like lock-in period, in the case of ELSS, tax saver funds, etc
Which SIP is best for 1,000 per month?
There are thousands of SIPs giving good returns. Most of the SIPs can be for as low as Rs 500 per month.
Can I do SIP for 25 years?
Yes, you can do SIP for 25 years.
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