Many desire investment rewards but fear taking risks to achieve their goals. However, one cannot escape the fundamental responsibilities of goals such as child education, housing, and retirement. To secure a prosperous future for loved ones and oneself, there is no better option than starting a Systematic Investment Plan (SIP). SIP involves investing a fixed sum periodically in mutual funds, similar to a recurring deposit in a bank or post office. By saving a small portion of earnings monthly, one can avoid the regret of not creating wealth and planning for the future.
Brings Discipline
Our usual approach is to spend first and then invest. Warren Buffet’s advice is to “spend what’s left after saving, not save what’s left after spending.” Any investment requires dedicated effort to achieve a specific goal. Taking the SIP route is one way to maintain discipline. SIPS enable you to invest a fixed amount regularly – daily, monthly, or quarterly. Since the amount is typically deducted automatically from your bank account, it ensures consistency. You can use SIPs to invest in various instruments such as mutual funds, stocks, bonds, or even gold funds.
Timing the Market- Watch This Video
For those who kept their money aside to time, the market could never make wealth. “I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world“- Peter Lynch. For people who don’t know how to make sense of markets, SIP is a godsend. By committing to regular investing, one can reduce the risk of bad timing in entering or exiting the market. Never stop your SIP at any cost till your goal is achieved.
Rupee Cost Averaging
Rupee Cost Averaging is an effective investment strategy that eliminates the need to time the market. All one has to do is to invest a fixed pre-decided amount of money on a regular basis for a long period of time. Since the amount invested is constant one buys more units when the price is low and fewer units when the price is high which may mean a lower average cost.
For example – You invest Rs 5000 every month in a fund whose NAV ( Net Asset Value ) is Rs 20. For the first month, the NAV was Rs 20 thus 250 units get credited to your account. However, if in next month the NAV falls to Rs 10 then 500 units get credited to your account. Similarly, if the NAV rises to Rs 40 then only 125 units get credited to your account. This results in averaging out the cost over a period of time.
Benefits of Compounding
Most great fortunes are built slowly.They are based on the principle of compound interest what Albert Einstine says ” Compound interest is the eighth natural wonder of the world and the most powerful thing I have ever encountered.” one must start a SIP as soon as one can to gain from the effect of compounding. Even a delay of a few years can make a significant difference to the wealth accumulated.
For example, a monthly SIP of just Rs. 1000 done for 30 years will yield you Rs. 30 lakh if your investment earns a return of 12%. However, if you start late by 5 years, then the same investment of Rs. 1,000 will yield you just Rs. 16.8 lakh which is 45% lower than the SIP investment started just 5 years earlier. Another benefit of SIP is that one does not have to invest a huge amount; one can start by investing as little as 500-1,000.
Flexibility
SIP are typically designed for open-ended funds, allowing investors to withdraw their invested amount at any time. Whether fully or partially, the withdrawal can be made during the SIP tenure or even after, except for tax- saving funds which have a mandatory lock-in period of three years. The invested amount can be adjusted, either increased or decreased, at any interval. While investors need to select an initial investment period when filling out the form, SIP do not have a fixed duration and can be terminated at any time. Moreover, the tenure can be extended by simply requesting the mutual fund company. To maximize the benefits of SIP, experts advise keeping the Investment for as long as possible. Also, keep in mind that gains from equity investments are subject to tax laws and can change any time kindly consult your Tax consultant or Financial Planner for tax queries
Guilt Free Spending
When you have done your investments for your goals at the start of your month through SIP, then you can spend rest of the salary as you want and you won’t have the guilt of not utilizing or saving the money at the end of the month. Most of the time we spend more then we invest or plan to invest which is the wrong way of money management. Make your money work for you, rather than you working hard for your goal.
Its never too late to start planning for your goal and investment start with small but with discipline is the only mantra of achieving wealth. There is no shortcut in life to achieve something in life same for the investment too, Be smart investor by investing for long-term with a specific goal.
Systematic Investment Plan (SIP) can be “Superb Investment plan” only if it is linked to “Specific Investment Plan” and done as “Sincere Investment Plan”
