SIP- Suppose you are an Indian resident in cities like New Delhi, Bengaluru, Chennai, or Mumbai, and hold a keen interest in growing your wealth using varied financial instruments. In that case, this article is specifically curated for you. We will peel back the layers of one of the most popular investment tools available – the Systematic Investment Plan, or SIP.
What is SIP?
Commonly referred to as SIP, a Systematic Investment Plan is an investment strategy often offered by mutual fund companies. Using SIPs, investors can invest a fixed amount in a chosen mutual fund scheme at regular intervals– weekly, monthly, or quarterly. The inherent advantage of SIPs is that it inculcates disciplined investing, and alleviates the need to time the market.
Contrary to popular belief, SIPs are not a financial product but a method to invest in mutual funds. This eliminates the need for a lump sum investment, making it pocket-friendly for novice investors.
SIPs are ideal for investing smaller amounts periodically, instead of one large sum. Over time, SIPs provide the benefit of compounding, which can lead to substantial returns, making them perfect for long-term wealth creation goals.
Why Should You Choose SIP?
- Flexibility: SIP provides you with the flexibility to start or stop an investment plan anytime.
- Predictability: SIP helps you budget your money as you know the fixed amount to be invested every period.
- Compounding: The power of compounding, combined with disciplined investing, results in a growing corpus over time.
SIP: The Powerhouse of Benefits
- Financial discipline: SIP cultivates a habit of disciplined investing by investing a fixed amount at regular intervals.
- Flexibility: You can choose an amount according to your comfort and also vary the amount of investment in the future.
- Potential for high returns: Investing regularly, irrespective of market conditions, can yield high returns in the long run.
- Convenience: With the autopilot mode of SIP, you can sit back and watch your wealth grow.
The Power of Rupee Cost Averaging in SIP
In SIP, you get to purchase more units when prices are low, and fewer units when prices are high, a novel method commonly known as Rupee Cost Averaging. This approach ensures that you are insulated from the short-term market volatility and thus helps you stay invested for the longer run.
| Month | Invested Amount (Rs) | Unit Price (Rs) | Units Purchased |
|---|---|---|---|
| 1 | 5000 | 10 | 500 |
| 2 | 5000 | 15 | 333.33 |
| 3 | 5000 | 12 | 416.67 |
As the above table indicates, the ebb and flow of the market are leveraged to get the best price for each investment.
How to Start a SIP
- Choose a Mutual Fund: Research and select a mutual fund scheme that suits your investment goals.
- Decide Investment Amount: Decide the amount you wish to invest regularly.
- Choose Frequency: Choose the frequency of your investment– weekly, monthly, or quarterly.
- Get Started: Use your bank’s net banking facilities to start your SIP.
In conclusion, Systematic Investment Plans are an excellent option for investors looking to build wealth over the long term. The flexibility, predictability, and systematic nature of an SIP are its most attractive features, helping you weather market volatility and reap the rewards of long-term investing.
