One of the most important things you should do while managing your heard earned money is by investing it in the right way and helping it grow over time. While the importance of investments leads to a secure life with adequate monetary support, it is equally important that you understand the correct way of investing thereby generating wealth out of savings. A disciplined way of investing is by taking the SIP (Systematic Investment Plan) route. When investments are done through a regular and systematic way, one could be pleasantly surprised by what SIPs can do to savings.
So what is an SIP (Systematic Investment Plan)?
A SIP is a powerful tool offered by mutual funds to help investors make small investments over time to build a long- term corpus in order to meet their financial goals effectively. It simple terms, it is an investment strategy which allows investors to invest a fixed amount in a particular mutual fund at a specified time period. It may be daily, weekly, fortnightly, monthly, and quarterly depending on what the investor is comfortable with.
What are the fantastic powers of SIP?
Brings discipline to investing – Irrespective of how the markets are doing, investing on a pre-set date every month makes you set aside a fixed sum of money and gradually turns you into a disciplined investor. When you let your SIPs remain on autopilot, you stop greed and fear from ruling over your decisions thereby investing with discipline.
Helps you average out investment costs – Markets become volatile anytime, however, when you invest through SIPs on a regular basis, you average out the cost of buying mutual fund units. You get more units when the market is down and less when it goes up. In other words, this is known as rupee cost averaging, and this makes any time an ideal time to invest as it reduces exposure to market volatility.
Wealth grows through the power of compounding – If you begin at an early age, SIP helps you to start investing to meet the greater expenses of your life. And the longer you stay invested, the more it increases over time additionally giving your money the opportunity to increase at higher rates. Saving money regularly makes your money work with greater power of compounding with significant impact on wealth accumulation.
Convenience and lighter on the wallet – SIP offers convenience by letting you choose your investment amount (one can invest with as low as Rs.500/-), the number of months you wish to invest, the frequency of investments and on which date you prefer to invest on.
Market timing becomes irrelevant – One of the most asked questions even until today is, “When should I start investing?” This is where SIP comes into picture. Investing through SIP helps you eliminate the need for timing the market. Keeping your money locked up in a locker or bank account may not help you reach your financial goals in life.
However, it is always recommended that one does a thorough research before starting an SIP in any mutual fund. Never select a fund merely based on rankings and ratings. While investing, have a long term approach and select the fund whose investment objective matches your financial goals and needs. Never forget to look at the portfolio of the fund. Seek the necessary help of a professional financial advisor, while doing both - buying and redeeming of mutual funds.