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Know What is Maximum Tenure To Invest In SIP To Fulfill Your Financial Goals

Mutual funds have a tremendous potential to generate returns for investors. But, the addition of the SIP facilities has taken the possibilities to a whole new level. It removed all the barriers related to investments and made the investment journey equal for everyone desiring to invest in mutual funds. SIP is one of the best flexible ways to enter mutual funds. It allows you to drive your investments the way you want. You can start anytime and even stop your SIPs as per your wish. However, to make your investments successful and justify your ROI, you must be making conscious decisions regarding your investment amount, risk-bearing ability, and most importantly, the investment tenure, as in the timeframe for which you want to or should invest in.

When it comes to investment tenure in mutual funds, the more you stay invested, the more you enjoy the benefits of compounding, and the greater return will be in your account. But as such, there isn’t a specific rule for identifying the investment horizon, nor is there any predefined maximum tenure. Most investors either consult financial advisors or utilize SIP calculators to identify the investment tenure and start their investment journey.

According to some experts, SIP investment offers desired results when you remain invested for at least five years so your funds have enough time to balance the losses. Having a long tenure helps you average out the highs and lows of investment, whereas a short one gives you higher returns but has higher risk factors involved. However, this doesn’t hold for every case.

Let’s take an example. Suppose there is a regular fund with a proven track record. For one year, its annual maximum return is 150%, and the minimum is -52%. Two years and the numbers become 80% and -32%. After five years, it became 56% & 6%. As per this scenario, if your risk appetite isn’t high and you want to avoid risks, you can consider short investment tenure.

If your sole investment purpose is to generate wealth over time, you can invest in a top SIP for a longer duration for as long as you wish. But if you have a goal in mind, you would need to decide on your investment tenure.

Some funds also have default lock-in periods, wherein the investor should remain invested until the scheme achieves the desired returns. If you are investing in close-ended funds, they come with a lock-in period. One example of a close-ended fund is the ELSS fund having a lock-in period of 3 years. But, if you have selected open-ended funds, there will be no lock-in period. So, in such a case, how would you decide the timeline for your investments? Well, the answer lies within your financial goals. What you want to achieve from your investments determines your investment tenure.

Suppose you want to generate an N amount after 15 years for your child’s marriage. It means you have 15 years to let your investments grow. However, this doesn’t mean you need to invest continuously during that tenure. You also need to make sure you have enough time to get through the losses you incurred in a bad year. To perform the calculations in terms of returns, you can use a SIP calculator.

A SIP calculator is an assistance tool through which you can get an estimate of returns from your investments through SIP for a particular period. Online SIP calculator, one from Glide Invest, request just three inputs from users like monthly investment, investment period, and expected rate of return.

After the user selects or enters the input values, the calculator performs the required calculations and presents the results as

  • Estimated value: The maturity amount investors will receive at the end of tenure.
  • Investment amount: The investor will invest through SIPs during the investment horizon
  • Actual return: The estimated returns from your investment.

You can tweak the input values of investment duration & amount and identify the best combination that can help you achieve your goals. Also, these values help you compare various fund schemes that can work best for your financial goals and help you achieve them in your time of need.

You can also utilize the SIP calculator to calculate and get an estimate on important numbers like the monthly investment amount for SIP payments, the total investment amount you will need during your chosen time frame along with the duration. Such information helps you stay with your investment planning and avoid end-moment shocks and shortfalls.

So whether you have the plan to build your house, buy a luxury car, or relax and enjoy your post-retirement life, with a SIP calculator, you can easily calculate the investment tenure and realize those plans into reality.

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Red Note: 30 September 2022

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