Inflation is known as the rise in prices of goods and services, as well as the cost of living utilities, over time. Inflation is rising with every passing year, making it increasingly difficult for ordinary people to afford a decent standard of living.
However, there is one way to beat inflation, which is, an SIP investment. With systematic investing and the power of compounding, you can significantly enhance your wealth.
With a tool like the SIP calculator online, you can even confirm your estimated returns. But how does SIP beat inflation? That is what you need to understand for enhanced financial literacy.
5 Ways Mutual Fund SIPs Can Help You Beat Inflation
Regular Investment
SIP teaches financial discipline. When you are investing a fixed amount of money in mutual funds at a regular interval, you force yourself to save money. It is best for young investors or new professionals to not only grow their wealth but also to understand the importance of investing.
This is one way to beat inflation. Although the value of money may decrease over time, a steady SIP investment will grow over time.
Compounding Power
The power of compounding is unbeatable; the SIP investment you do today compounds over time and increases the value of your portfolio significantly. Inflation might affect the money you have today, but with compounding, you have a greater chance to beat inflation and build wealth in the upcoming years.
Rupee Cost Average
When you calculate your SIP investment in the SIP calculator online, you will see that this investment does not rely on market timing. Instead, you can buy more assets when their value is lower and fewer assets when their value is higher. This scenario is known as rupee cost averaging, which counters the risk associated with market volatility.
Portfolio Diversification
With investment in SIP, you get the option to diversify your investment portfolio. You can invest in equities, debt, ETFs or hybrid funds. This diversification enables you to outperform rising inflation, as you have different asset classes with varying risk levels.
For example, equity returns generally outperform the inflation rate; however, including debt in the portfolio may bring stability. You can even use the SIP calculator online to calculate what amount should be invested in which asset category, as per their estimated returns.
Long-Term Investment
Inflation is an ever-present issue that can only be dealt with, not eradicated. Thus, to keep yourself financially afloat with inflation and market volatility, you should focus on long-term investment. With SIP, you get the chance to stay invested for a longer period, say 15 to 20 years.
By investing money for a longer duration, you give it more time to grow with the power of compounding. It ultimately helps you beat inflation in the long run.
Summing Up
Inflation can erode the buying power of money; the things that you can afford today might not be available at the same price in future. Thus, it is crucial to invest in financial products that not only help you sustain in future but also increase your money and its buying power. SIP investment is one of the best choices to make.
