Inflation affects everyone. It slowly eats away the value of money over time. What you can buy with Rs. 100 today may cost Rs. 120 or more a few years later. This is why just saving money in a bank account might not be enough. You need to grow your money faster than the rate at which prices are rising. That’s where investing comes in.
Among many investment options, one popular way to grow money is through a mutual fund SIP plan, especially in equity funds. But can this really help you beat inflation in the long run? Let’s understand this better.
What is Inflation?
Inflation is the rise in the prices of goods and services over time. It reduces your purchasing power. For example, if inflation is 6% per year, something that costs Rs. 1,000 today may cost Rs. 1,060 next year. Over 10 years, this can make a huge difference. If your income or savings don’t grow at the same pace or faster, you may find it harder to maintain your lifestyle.
Why not just save?
Saving is important, but saving alone is not enough. A few traditional saving options offer lower returns, often below or just equal to inflation. This means your money is not actually growing in real terms. In fact, you may be losing value without realizing it. However, returns on Traditional saving options like fixed deposits or regular savings accounts are guaranteed but returns of Mutual Funds are subject to market risk.
What is a mutual fund SIP plan?
A mutual fund SIP plan allows you to invest a fixed amount regularly – monthly, quarterly, or as per your comfort into a mutual fund. SIP stands for Systematic Investment Plan. It helps you build wealth gradually, without needing a big lumpsum at once.
When you choose to invest in equity mutual funds through SIPs, your money has the potential to give relatively better returns over a long period. However, they also carry some risks in the short term due to market ups and downs.
How can equity mutual funds beat inflation?
Equity mutual funds aims to grow your money at a faster rate than inflation. However, past performance may or may not be sustained in the future.
Let’s say you invest Rs. 5,000 per month in an equity mutual fund through a SIP for 15 years. Using a SIP calculator, you will find that with an average return of 12%, your total investment of Rs. 9 lakhs could grow to over Rs. 25 lakhs. Even after adjusting for inflation, you would have made a significant gain in purchasing power.
This is how long-term investing through equity SIPs can help you stay ahead of rising prices.
Benefits of SIP in equity mutual funds
Disciplined investing: A mutual fund SIP plan builds the habit of regular investing. This helps in long-term wealth creation.
Power of compounding: When your returns earn more returns, your wealth grows faster. SIPs benefit from compounding over time.
Rupee Cost Averaging: By investing regularly, you buy more units when prices are low and fewer when prices are high. This averages out your cost and reduces risk.
Start small, think big: You don’t need a large amount to begin. Even Rs. 500 per month can be a good start.
Flexibility: You can start, stop, or change the amount anytime. It gives you full control over your investment journey.
Long-term view is key
Equity mutual funds can be volatile in the short term. Markets go up and down. But historically, over longer periods, equity investments have given relatively better returns than inflation. However, it must be noted that returns from equity mutual funds are market-linked and past performance may or may not be sustained in the future
So, if you are investing for long-term goals like retirement, child’s education, or buying a home, a mutual fund SIP plan in equity funds can be a suitable choice.
Role of SIP calculator
Before starting an SIP, it’s helpful to plan. An SIP calculator is a simple online tool that helps you know how much you need to invest each month to reach your financial goals. It also shows how your money can grow over time based on expected returns.
For example, if your goal is to build a corpus of Rs. 50 lakhs in 20 years, the SIP calculator can tell you how much to invest monthly and what return rate is needed. This helps in setting realistic goals and planning better.
Things to keep in mind
Choose a suitable fund: Not all equity mutual funds perform the same. Look at past performance, fund manager experience, and risk level before investing.
Stay invested: Don’t panic during market downturns. Equity investing is all about staying invested for the long haul.
Review periodically: Track your SIPs once or twice a year to make sure you’re on the right path.
Keep your goal in focus: Always link your SIPs to specific goals. It gives you purpose and helps you stay committed.
Conclusion
Yes, a mutual fund SIP plan in equity funds can help you beat inflation over the long term. The key lies in starting early, staying regular, and having patience. While markets may be uncertain in the short term, history shows that equity investments benefit those who wait.
Use an SIP calculator to plan wisely and invest consistently. Over time, your small monthly contributions can grow into a large sum, one that not only beats inflation but helps you reach your dreams.
Also Read:
8 Types of Mutual Funds to Start Investing
